Inventory Management Flashcards

Which inventory replenishment system triggers an order when stock falls to a predetermined level, regardless of time?

Answer: Continuous review system

A continuous (perpetual) review system monitors inventory constantly and places an order when stock hits the reorder point.

A company experiences demand of 500 units/week with a lead time of 3 weeks and carries 1,500 units of safety stock. What is the reorder point?

Answer: 3,000 units

Reorder point = (Average demand × Lead time) + Safety stock = (500 × 3) + 1,500 = 3,000 units.

Which costing method assigns the cost of the most recently purchased inventory to cost of goods sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assigns the newest inventory costs to COGS, leaving older costs in ending inventory.

What does the 'bullwhip effect' describe in supply chain inventory management?

Answer: Demand variability that amplifies upstream through the supply chain

The bullwhip effect is the phenomenon where small demand fluctuations at the retail level cause increasingly large swings in upstream orders.

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

Answer: Inventory turnover ratio

Inventory turnover ratio = COGS ÷ Average inventory, showing how often inventory cycles through in the period.

A firm uses a periodic review (P) system. Which parameter is set in advance in this system?

Answer: Review interval

In a periodic review system, the review interval (P) is fixed, and the order quantity varies to bring inventory up to a target level.

Which type of inventory is held specifically to decouple two stages of production or supply from each other?

Answer: Decoupling (buffer) inventory

Decoupling inventory separates adjacent production stages so each can operate independently at its own pace.