Inventory Control & Demand Planning Flashcards

Which type of demand is derived from the demand for a finished product?

Answer: Dependent demand

Dependent demand for components and raw materials is calculated directly from the production schedule for parent items.

A 'stockout' most directly results in which of the following costs?

Answer: Lost sales and customer dissatisfaction

Stockouts cause lost revenue, emergency purchasing premiums, and long-term damage to customer relationships and loyalty.

The bullwhip effect in supply chains is primarily caused by:

Answer: Demand signal distortion as orders move upstream

Small fluctuations in consumer demand become amplified as each upstream tier adds its own safety stock buffer, creating large order swings.

Which inventory valuation method results in the highest Cost of Goods Sold during periods of rising prices?

Answer: LIFO (Last-In, First-Out)

LIFO assigns the most recently purchased (highest-cost) items to COGS first, maximizing cost expenses when prices are rising.

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

Answer: To maintain inventory between a minimum trigger point and a maximum target level

In a min-max system, an order is triggered when inventory falls to the minimum level, and the order quantity brings stock up to the maximum level.

Phantom inventory occurs when:

Answer: Inventory records show stock exists, but physical stock is absent or not locatable

Phantom inventory (or 'ghost' inventory) creates inaccurate replenishment signals because the system believes product is available when it is not.

In demand planning, 'seasonality index' is used to:

Answer: Adjust baseline demand forecasts for predictable seasonal patterns

A seasonality index quantifies how much demand in a given period deviates from the annual average, enabling more accurate period-specific forecasts.