SCHM 2301 UPDATED PRACTICE EXAM QUESTIONS AND
ANSWERS MARKED A+
✔✔Benefits of Collaborative Planning, Forecasting and Replenishment
(CPFR) - ✔✔• Improved customer service through better forecasting techniques
• Lower Inventories for higher profits
• Improved ROI on Technology investment
• Improved relationships between trading partners
• Cost reduction
✔✔Inventory - ✔✔one of the most expensive assets of many companies. It can
represent as much as 60% of total invested capital.
✔✔Roles of Inventory - ✔✔balancing supply and demand, buffers against uncertainties,
enabling economies of buying, enabling geographic specialization
✔✔Carrying costs - ✔✔• Opportunity cost (cost of capital)
• Storage and warehouse management
• Taxes and insurance
• Obsolescence, spoilage, & shrinkage
• Material handling, tracking and management
✔✔Ordering and Set-up Costs - ✔✔• Purchased items: placing and receiving orders
• Make items: change-over between items
✔✔Stockout Costs - ✔✔• Lost sales or customer loyalty
• Expediting
• Schedule disruption
• Backorders
• Bull-Whip Effect
✔✔Inventory turnover - ✔✔ratio of average inventory on-hand and level of sales (asset
productivity)
= Cost of goods sold / Average inventory at cost
= Net sales / Average inventory at selling price
= Unit sales / Average inventory in units
✔✔Advantages of high turn over - ✔✔• 'Fresh' inventory from high sales
• Reduced risk or mark down from obsolescence
• Reduced total carrying costs
• Lower asset investment and higher productivity
✔✔Dangers of high turnover - ✔✔• Stock outs may mean lower sales
• Increased costs from missing quantity requirements
• Increased ordering costs
, ✔✔Days of Supply - ✔✔length of time operations can be supported with inventory on-
hand
= Inventory/Daily demand
✔✔Service Level - ✔✔ability to meet customer demand without a stock out
✔✔Stock out - ✔✔no inventory is available
✔✔Independent Demand - ✔✔demand is beyond control of the organization
✔✔Dependent Demand - ✔✔demand is driven by demand of another item
✔✔Continuous Review Model - ✔✔a computer system tracks sales and keeps a
running tally of quantities on hand. This model is more accurate, but more costly.
✔✔Ordering costs - ✔✔associated with placing orders and receiving supply
✔✔Holding costs - ✔✔associated with storing and assuming risk of having inventory
✔✔Total Acquisition Costs - ✔✔sum of all relevant annual inventory costs
✔✔Economic Order Quantity (EOQ) - ✔✔minimizes total acquisition costs; point at
which holding and orders costs are equal
✔✔Assumptions underlying EOQ: - ✔✔• No quantity discounts
• No lot size restrictions
• No partial deliveries
• No variability
• No product interactions
✔✔Reorder Point - ✔✔minimum level of on-hand inventory that triggers a replenishment
✔✔Service Level Policy - ✔✔determining the acceptable stock out risk level
✔✔Order Interval - ✔✔fixed time between inventory review, on-hand level is unknown
during this uncertainty period. Need to determine the order quantity, Q.
✔✔Square Root Rule - ✔✔estimation of impact of changing the number of locations on
inventory
✔✔ABC analysis - ✔✔ranking inventory by importance
ANSWERS MARKED A+
✔✔Benefits of Collaborative Planning, Forecasting and Replenishment
(CPFR) - ✔✔• Improved customer service through better forecasting techniques
• Lower Inventories for higher profits
• Improved ROI on Technology investment
• Improved relationships between trading partners
• Cost reduction
✔✔Inventory - ✔✔one of the most expensive assets of many companies. It can
represent as much as 60% of total invested capital.
✔✔Roles of Inventory - ✔✔balancing supply and demand, buffers against uncertainties,
enabling economies of buying, enabling geographic specialization
✔✔Carrying costs - ✔✔• Opportunity cost (cost of capital)
• Storage and warehouse management
• Taxes and insurance
• Obsolescence, spoilage, & shrinkage
• Material handling, tracking and management
✔✔Ordering and Set-up Costs - ✔✔• Purchased items: placing and receiving orders
• Make items: change-over between items
✔✔Stockout Costs - ✔✔• Lost sales or customer loyalty
• Expediting
• Schedule disruption
• Backorders
• Bull-Whip Effect
✔✔Inventory turnover - ✔✔ratio of average inventory on-hand and level of sales (asset
productivity)
= Cost of goods sold / Average inventory at cost
= Net sales / Average inventory at selling price
= Unit sales / Average inventory in units
✔✔Advantages of high turn over - ✔✔• 'Fresh' inventory from high sales
• Reduced risk or mark down from obsolescence
• Reduced total carrying costs
• Lower asset investment and higher productivity
✔✔Dangers of high turnover - ✔✔• Stock outs may mean lower sales
• Increased costs from missing quantity requirements
• Increased ordering costs
, ✔✔Days of Supply - ✔✔length of time operations can be supported with inventory on-
hand
= Inventory/Daily demand
✔✔Service Level - ✔✔ability to meet customer demand without a stock out
✔✔Stock out - ✔✔no inventory is available
✔✔Independent Demand - ✔✔demand is beyond control of the organization
✔✔Dependent Demand - ✔✔demand is driven by demand of another item
✔✔Continuous Review Model - ✔✔a computer system tracks sales and keeps a
running tally of quantities on hand. This model is more accurate, but more costly.
✔✔Ordering costs - ✔✔associated with placing orders and receiving supply
✔✔Holding costs - ✔✔associated with storing and assuming risk of having inventory
✔✔Total Acquisition Costs - ✔✔sum of all relevant annual inventory costs
✔✔Economic Order Quantity (EOQ) - ✔✔minimizes total acquisition costs; point at
which holding and orders costs are equal
✔✔Assumptions underlying EOQ: - ✔✔• No quantity discounts
• No lot size restrictions
• No partial deliveries
• No variability
• No product interactions
✔✔Reorder Point - ✔✔minimum level of on-hand inventory that triggers a replenishment
✔✔Service Level Policy - ✔✔determining the acceptable stock out risk level
✔✔Order Interval - ✔✔fixed time between inventory review, on-hand level is unknown
during this uncertainty period. Need to determine the order quantity, Q.
✔✔Square Root Rule - ✔✔estimation of impact of changing the number of locations on
inventory
✔✔ABC analysis - ✔✔ranking inventory by importance
