Supply Chain Management Inventory Management 4

Question 1

What does 'stockout cost' represent in inventory management?

Accepted Answer

Revenue or goodwill lost when demand cannot be met due to insufficient inventory

Answer

Stockout costs include lost sales, backorder costs, customer dissatisfaction, and potential long-term loss of customer loyalty when inventory is unavailable.

Question 2

In an EOQ model, what happens to the optimal order quantity if holding costs double while all other variables remain constant?

Accepted Answer

EOQ decreases by approximately 29%

Answer

Since EOQ = √(2DS/H), doubling H results in EOQ being divided by √2, reducing it by approximately 29%.

Question 3

Which inventory replenishment strategy involves placing orders at fixed time intervals regardless of current inventory levels?

Accepted Answer

Periodic review system (P system)

Answer

The periodic review (P) system triggers orders at predetermined time intervals, with order quantity adjusted to bring stock up to a target level.

Question 4

A supply chain manager wants to reduce the bullwhip effect. Which action would be MOST effective?

Accepted Answer

Share real-time point-of-sale demand data with upstream suppliers

Answer

Sharing real-time downstream demand data reduces information distortion as orders travel upstream, directly addressing the root cause of the bullwhip effect.

Question 5

What is 'shrinkage' in the context of retail inventory management?

Accepted Answer

Inventory loss due to theft, damage, administrative errors, or supplier fraud

Answer

Shrinkage is the difference between recorded inventory and actual physical inventory, caused by shoplifting, employee theft, damage, or clerical errors.

Supply Chain Management Practice Test

Supply Chain Management Practice Test

Supply Chain Management Inventory Management 4