Inventory Management Flashcards

What is the effect of demand variability on safety stock requirements when lead time is constant?

Answer: Safety stock increases as demand variability increases

Higher demand variability creates greater uncertainty, requiring more safety stock to maintain a given service level.

Which method assigns the most recent purchase cost to cost of goods sold?

Answer: LIFO

LIFO (Last In, First Out) assumes the most recently purchased items are sold first, assigning their costs to COGS.

In a two-bin system, what event triggers reordering?

Answer: When the first bin is emptied

In a two-bin system, emptying the first bin triggers an order; the second bin provides stock during the replenishment lead time.

What is 'shrinkage' in the context of inventory management?

Answer: Unplanned loss of inventory due to theft, damage, or error

Shrinkage refers to the unexplained reduction in inventory resulting from theft, damage, spoilage, or administrative error.

Which of the following best describes 'postponement' as an inventory strategy?

Answer: Deferring final product differentiation until closer to customer demand

Postponement delays final product customization or configuration until actual customer demand is known, reducing finished goods inventory risk.

When calculating the reorder point with safety stock, which formula is correct?

Answer: ROP = Average demand during lead time + Safety stock

The reorder point equals average demand during lead time plus safety stock to account for both normal demand and variability.

What is the purpose of an inventory record accuracy (IRA) audit?

Answer: To verify that physical counts match recorded inventory balances

IRA audits compare physical inventory counts to system records, identifying and correcting discrepancies to maintain data integrity.