Inventory Control & Supply Chain Management Flashcards

A company's annual demand is 10,000 units, ordering cost is $50, and holding cost is $2 per unit per year. What is the Economic Order Quantity (EOQ)?

Answer: 707 units

EOQ = √(2DS/H) = √(2×10,000×50/2) = √500,000 ≈ 707 units.

Which inventory classification method assigns items to categories A, B, and C based on their annual dollar value?

Answer: ABC analysis

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

In supply chain management, what does the term 'bullwhip effect' describe?

Answer: Demand variability amplification upstream in the supply chain

The bullwhip effect describes how small demand fluctuations at the retail level become increasingly amplified as orders move upstream through the supply chain.

A warehouse uses cycle counting. If it has 5,000 SKUs and counts 20 items per day, approximately how many days does one full cycle take?

Answer: 250 days

5,000 SKUs ÷ 20 items/day = 250 days for one complete cycle count.

Which supply chain strategy positions inventory closer to end customers to reduce lead times, often used in e-commerce?

Answer: Forward deployment

Forward deployment places inventory in regional fulfillment centers near customers to reduce last-mile delivery times.

What is the primary purpose of safety stock in an inventory system?

Answer: Buffer against demand variability and supply uncertainty

Safety stock is held as a buffer to protect against stockouts caused by unexpected demand spikes or supplier delivery delays.

In a vendor-managed inventory (VMI) arrangement, who is responsible for replenishment decisions?

Answer: The supplier/vendor

In VMI, the supplier monitors customer inventory levels and takes responsibility for replenishment decisions, reducing the buyer's ordering burden.