Inventory Control & Stock Replenishment Flashcards

A company orders 2,400 units annually, has an ordering cost of $50 per order, and a holding cost of $2 per unit per year. What is the EOQ?

Answer: 346 units

EOQ = √(2 × 2,400 × $50 / $2) = √(240,000 / 2) = √120,000 ≈ 346 units.

What is 'phantom inventory' in the context of retail stock management?

Answer: Items that appear available in the system but are physically missing or mislocated

Phantom inventory refers to items shown as in-stock in the system but unavailable on the shelf due to theft, damage, or misplacement.

Which inventory metric measures how many times inventory is sold and replaced over a specific period?

Answer: Inventory turnover ratio

Inventory turnover = Cost of Goods Sold / Average Inventory, measuring how frequently inventory is sold and replenished.

In a periodic review (P) system, what happens at each review interval?

Answer: An order is placed to bring inventory up to a target level

In a periodic review system, at each fixed review interval an order is placed to bring inventory up to a predetermined target (order-up-to) level.

What does 'obsolescence risk' primarily influence when setting safety stock levels?

Answer: Higher obsolescence risk favors lower safety stock levels

Items with high obsolescence risk should carry lower safety stock because holding excess inventory increases the chance it becomes unsellable.

A stockout occurs when customer demand exceeds available inventory. Which cost is most directly associated with a stockout?

Answer: Lost sales and customer dissatisfaction

Stockouts directly cause lost sales, back-order costs, emergency sourcing expenses, and long-term customer attrition.

Cross-docking in a distribution center primarily reduces which inventory-related cost?

Answer: Storage and holding costs

Cross-docking transfers goods directly from inbound to outbound transport with minimal storage, significantly reducing warehouse holding costs.