Supply Chain and Logistics Inventory Management 2 — Questions and Answers
Question 1: What is a reorder point (ROP)?
- The maximum inventory level allowed
- The inventory level at which a new order should be placed (Correct answer)
- The quantity of goods returned per cycle
- The minimum safety stock threshold
Correct answer: The inventory level at which a new order should be placed
The reorder point is the inventory level that triggers a new purchase order, calculated using lead time and average demand.
Question 2: Which inventory system continuously tracks stock levels and triggers orders when needed?
- Periodic review system
- Continuous review system (Correct answer)
- Vendor-managed inventory
- Just-in-time system
Correct answer: Continuous review system
A continuous review (Q) system monitors inventory in real time and places orders whenever stock falls to the reorder point.
Question 3: What is the carrying cost of inventory?
- Cost to ship goods to customers
- Total cost of holding inventory over a period (Correct answer)
- Purchase price of raw materials
- Cost to process a purchase order
Correct answer: Total cost of holding inventory over a period
Carrying cost includes storage, insurance, obsolescence, taxes, and capital opportunity costs associated with holding inventory.
Question 4: Which approach keeps inventory levels extremely low by receiving goods only as they are needed?
- Economic Order Quantity
- Vendor-Managed Inventory
- Just-in-Time (JIT) (Correct answer)
- Cross-docking
Correct answer: Just-in-Time (JIT)
Just-in-Time inventory reduces waste and holding costs by timing deliveries to match production or sales demand precisely.
Question 5: What does the term 'shrinkage' refer to in retail inventory?
- Seasonal decline in sales
- Inventory loss due to theft, damage, or administrative error (Correct answer)
- Product size reduction
- Decrease in supplier lead time
Correct answer: Inventory loss due to theft, damage, or administrative error
Shrinkage is the difference between recorded inventory and actual physical inventory, caused by theft, spoilage, or counting errors.
Question 6: In a two-bin inventory system, what triggers a new order?
- When both bins are full
- When the first bin is empty
- When the second bin starts being used (Correct answer)
- When weekly count reveals shortage
Correct answer: When the second bin starts being used
In a two-bin system, consumption from the second bin signals that a replenishment order should be placed to refill both bins.
Supply Chain and Logistics Inventory Management 2
What is a reorder point (ROP)?