Inventory Planning & Control Strategies Flashcards

A company notices its inventory turnover ratio has decreased from 8 to 5 over the past year. What does this most likely indicate?

Answer: Excess inventory is being held relative to sales

A declining inventory turnover ratio indicates that inventory is sitting longer before being sold, suggesting excess stock relative to demand.

Which inventory classification method assigns items to categories A, B, or C based on annual dollar usage?

Answer: ABC analysis

ABC analysis categorizes inventory by annual dollar value, with A items representing the highest value (typically 70-80% of value from 10-20% of items).

In a periodic review system, what is determined at each review interval?

Answer: The order quantity needed to bring inventory to a target level

In a periodic review system, the order quantity is calculated at each review period to replenish inventory up to a predetermined target or order-up-to level.

Which cost is NOT typically included in inventory carrying costs?

Answer: Setup or ordering cost

Setup or ordering cost is an ordering cost (or production cost), not a carrying cost; carrying costs include storage, insurance, taxes, and obsolescence.

A product has a demand of 500 units/week with a lead time of 3 weeks and a safety stock of 200 units. What is the reorder point?

Answer: 1,700 units

Reorder Point = (Demand × Lead Time) + Safety Stock = (500 × 3) + 200 = 1,700 units.

Which inventory model assumes that the entire order quantity arrives at once and demand is continuous?

Answer: Basic EOQ model

The basic EOQ model assumes instantaneous replenishment (entire order arrives at once) and a constant, continuous demand rate.

What is the primary purpose of a min-max inventory system?

Answer: To trigger replenishment when stock falls to a minimum and order up to a maximum level

A min-max system places an order when inventory hits the minimum level, ordering enough to bring stock up to the maximum level.