Inventory Control & Stock Replenishment Flashcards

What is the primary goal of inventory control?

Answer: To maintain optimal stock levels and meet demand

The primary goal of inventory control is to strike a balance between having enough stock to meet customer demand and avoiding excessive inventory that incurs high holding costs. Effective inventory control ensures that products are available when needed, preventing stockouts and lost sales, while also minimizing waste, obsolescence, and storage expenses. This optimization is crucial for operational efficiency and profitability.

Which method is commonly used to determine reorder points?

Answer: Average lead time demand plus safety stock

The reorder point is a critical inventory management metric that signals when new stock should be ordered to prevent stockouts. It is typically calculated by considering the demand during the lead time (the time it takes for an order to arrive) and adding a safety stock buffer. This buffer accounts for unexpected fluctuations in demand or lead time, ensuring continuous supply.

What is a common challenge in stock replenishment?

Answer: Inaccurate demand forecasting

Inaccurate demand forecasting is a significant challenge in stock replenishment because it can lead to either overstocking or understocking. If demand is overestimated, excess inventory results in higher holding costs and potential obsolescence; if underestimated, stockouts occur, leading to lost sales and customer dissatisfaction. Accurate forecasting is essential for efficient and timely replenishment decisions.

Which inventory management technique helps classify items based on their importance?

Answer: ABC analysis

ABC analysis is an inventory management technique that classifies inventory items into three categories (A, B, and C) based on their value and importance to the business. 'A' items are high-value, low-volume items requiring tight control; 'B' items are moderate; and 'C' items are low-value, high-volume items with simpler control. This method allows businesses to prioritize their inventory management efforts, focusing resources on the most critical items.

What is the purpose of safety stock?

Answer: To act as a buffer against stockouts

Safety stock is an extra quantity of inventory held to mitigate the risk of stockouts caused by uncertainties in demand or supply lead time. It acts as a buffer, ensuring that operations can continue smoothly even if there are unexpected spikes in customer orders or delays from suppliers. Maintaining adequate safety stock is crucial for maintaining customer service levels and preventing disruptions.

Which software functionality is essential for stock replenishment automation?

Answer: Automatic reordering based on inventory levels

For stock replenishment automation, the essential software functionality is the ability to automatically trigger new orders when inventory levels drop to a predefined reorder point. This feature eliminates manual monitoring, reduces human error, and ensures timely replenishment. By integrating with inventory tracking and demand forecasting, it streamlines the entire procurement process.

What inventory method records every transaction in real-time?

Answer: Perpetual inventory system

A perpetual inventory system continuously updates inventory records in real-time as items are received and sold. Every transaction, whether it's a purchase, sale, or return, is immediately recorded, providing an up-to-the-minute view of stock levels. This system offers greater accuracy and control over inventory compared to periodic methods, which only update records at specific intervals.

What is Economic Order Quantity (EOQ)?

Answer: The optimal order quantity to minimize ordering and holding costs

Economic Order Quantity (EOQ) is a formula used in inventory management to calculate the ideal order size that minimizes the total inventory costs, which include both ordering costs (e.g., administrative costs, shipping fees) and holding costs (e.g., storage, insurance, obsolescence). By finding this optimal quantity, businesses can reduce expenses associated with inventory management.

How does lead time affect inventory management?

Answer: It affects replenishment timing and stock levels

Lead time, the duration between placing an order and receiving it, significantly impacts inventory management by determining when orders need to be placed and how much safety stock is required. Longer lead times necessitate earlier reorder points and often larger safety stock levels to prevent stockouts. Understanding and managing lead time is crucial for accurate demand forecasting and efficient inventory planning.