Supply Chain and Logistics Inventory Management 1 — Questions and Answers
Question 1: What does EOQ stand for in inventory management?
- Economic Order Quantity (Correct answer)
- Expected Order Quality
- Efficient Output Quota
- Estimated Order Queue
Correct answer: Economic Order Quantity
EOQ (Economic Order Quantity) is the ideal order quantity that minimizes total inventory holding and ordering costs.
Question 2: Which inventory method assumes the first items purchased are the first items sold?
- LIFO
- FIFO (Correct answer)
- Weighted Average
- Specific Identification
Correct answer: FIFO
FIFO (First In, First Out) assumes inventory purchased earliest is sold first, commonly used for perishable goods.
Question 3: What is safety stock used for in inventory management?
- Reduce ordering frequency
- Buffer against demand variability and supply delays (Correct answer)
- Lower purchase price
- Improve supplier relationships
Correct answer: Buffer against demand variability and supply delays
Safety stock is extra inventory held to protect against unexpected spikes in demand or delays in replenishment.
Question 4: Which metric measures how many times inventory is sold and replaced over a period?
- Fill rate
- Carrying cost ratio
- Inventory turnover (Correct answer)
- Days sales outstanding
Correct answer: Inventory turnover
Inventory turnover ratio equals cost of goods sold divided by average inventory, indicating how efficiently stock is managed.
Question 5: What is the primary goal of ABC analysis in inventory control?
- Alphabetically organize SKUs
- Prioritize inventory items by value and volume (Correct answer)
- Automate reordering
- Track supplier performance
Correct answer: Prioritize inventory items by value and volume
ABC analysis classifies inventory into A (high value), B (moderate), and C (low value) categories to focus management effort.
Question 6: What does 'dead stock' refer to in inventory management?
- Items in transit
- Inventory that has never been sold and is unlikely to be sold (Correct answer)
- Returned merchandise
- Items awaiting quality inspection
Correct answer: Inventory that has never been sold and is unlikely to be sold
Dead stock consists of unsold inventory that occupies storage space and ties up capital without generating revenue.
Supply Chain and Logistics Inventory Management 1
What does EOQ stand for in inventory management?