Inventory Management Flashcards

What does 'service level' mean in the context of inventory management?

Answer: The probability of not having a stockout during a replenishment cycle

Service level (cycle service level) is the probability that demand will be fully met from inventory during the replenishment lead time.

The 'two-bin' inventory system is an example of which replenishment approach?

Answer: Continuous review with a fixed reorder point (Q system)

The two-bin system triggers an order when the first bin is empty, using the second bin as safety stock while awaiting replenishment — a visual continuous review method.

Which of the following best reduces the risk of supply chain disruption from a single critical component?

Answer: Maintaining strategic inventory buffers and qualifying alternative suppliers

Strategic buffer stock combined with qualified backup suppliers provides dual protection against both supply interruptions and demand spikes for critical items.

What is the primary impact of reducing inventory lead time on safety stock requirements?

Answer: Shorter lead times allow lower safety stock levels because there is less uncertainty to buffer against

Safety stock is proportional to lead time variability — as lead time decreases, the window of demand uncertainty shrinks, reducing required safety stock.

In supply chain management, 'postponement' of inventory differentiation helps to:

Answer: Reduce total inventory investment by holding generic stock longer and differentiating closer to actual demand

Postponement reduces the risk of holding wrong variants by delaying differentiation until demand signals are clearer, reducing total safety stock needs.

What is 'pipeline inventory' in supply chain management?

Answer: Inventory that is in transit between supply chain nodes and has not yet reached its destination

Pipeline inventory refers to goods in motion — on trucks, ships, or planes — that are part of the supply chain but not yet available for use.