A company stocks, maintains, and distributes inventory. The company decides to add to the safety stock and expedite delivery for several product lines on a trial basis. For the selected product lines the company will experience
Answer(s): B
Safety stocks are amounts held in excess of forecasted demand to avoid the losses associated with stockouts. Holding safety stocks improves the level of service to customers at the expense of increased holding costs.
Which of the following inventory items would be the most frequently reviewed in an ABC inventory control system?
Answer(s): D
The ABC system is a method for controlling inventories that divides inventory items into three groups:Group A -- high-monetary value items, which account for a small portion perhaps 10%) of the total inventory usageGroup B -- medium-monetary value items, which may account for about 20°l0 of the total inventory itemsGroup C -- low-monetary value items, which account for the remaining 70% of sales or usage The ABC system permits the proper degree of managerial control to be identified and exercised over each group. Group A items are reviewed on a regular basis. Group B items may not have to be revered as often as group A items, but more often than group C items. For group C, extensive use of models and records is not cost effective. It is cheaper to order large quantities infrequently. The ABC method therefore reduces the safety-stock investment because high-value items are frequently monitored and medium-value items are monitored more often than inexpensive items. Frequent review can prevent stockouts and decrease inventory levels, and the cost of such review is minimized if it is limited to high- or medium- value items.
The company uses a planning system that focuses first on the amount and timing of finished goods demanded and then determines the derived demand for raw material, components, and subassemblies at each of the prior stages of production. This system is referred to as
materials requirements planning CIRF) is usually a computer-based information system designed to plan and control raw materials used in a production setting. It assumes that estimated demand for materials is reasonably accurate and that suppliers can deliver based upon this accurate schedule. It is crucial that delivery delays be avoided because, under CIRF, production delays are almost unavoidable if the materials are not on hand. An MRF system uses a parts list, often called a bill of materials, and lead times for each type of material to obtain materials just as they are needed for planned production.
An inventory planning method that minimizes inventories by arranging to have raw materials and subcomponents arrive immediately preceding their use is called
Answer(s): C
JIT is a manufacturing philosophy popularized by the Japanese that combines purchasing, production, and inventory control. As with MFP, minimization of inventory is a goal; however, JIT also encompasses changes in the production process itself. An emphasis on quality and a "pull" of materials related to demand are key differences between JIT and MFP. The factory is organized so as to bring materials and tools close to the point of use rather than keeping them in storage areas. A key element of the JIT system is reduction or elimination of waste of materials, labor, factory space, and machine usage. Minimizing inventory is the key to reducing waste. V1lhen a part is needed on the production line, it arrives just in time, not before. Daily deliveries from suppliers are the ultimate objective, and some Japanese users have been able to get twice-daily deliveries.
One of the elements included in the economic order quantity EOQ) formula is
The basic EOQ formula is used to minimize the total of inventory carrying and ordering costs. The basic EOQ equals the square root of a fraction consisting of a numerator equal to the product of twice the unit periodic demand and the variable cost per order and a denominator equal to the unit periodic carrying cost. Using an EOQ analysis assuming a constant demand), it is determined that the optimal order quantity is 2, 500. The company desires a safety stock of 500 units. A five-day lead time is needed for delivery. Annual inventory holding costs equal 25% of the average inventory level. It costs the company U $4 per unit to buy the product, which it sells for U $. It costs the company U $150 to place a detailed order, and the monthly demand for the product is 4, 000 units.
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