Inventory Control & Demand Planning Flashcards

Which inventory management strategy places the burden of maintaining stock levels on the supplier rather than the buyer?

Answer: Vendor-Managed Inventory (VMI)

In VMI, the supplier monitors the buyer's inventory levels and takes responsibility for replenishment decisions within agreed-upon parameters.

Mean Absolute Percentage Error (MAPE) is used in demand planning to:

Answer: Measure forecast accuracy as a percentage of actual demand

MAPE expresses the average absolute difference between forecasted and actual values as a percentage, enabling comparison across items with different scales.

A company switches from a lot-for-lot ordering policy to fixed-period lot sizing. What is the primary trade-off?

Answer: Higher carrying costs vs. lower ordering frequency

Fixed-period lot sizing accumulates demand over a set period into one order, reducing order frequency but increasing average inventory and holding costs.

Which approach to cycle counting prioritizes items with the highest dollar value or transaction frequency?

Answer: ABC-based cycle counting

ABC-based cycle counting counts A-items most frequently and C-items least frequently, focusing audit effort where inventory errors have the greatest financial impact.

In the context of inventory management, 'dead stock' refers to:

Answer: Items that have had no sales movement for an extended period

Dead stock occupies warehouse space and ties up working capital without generating sales, making it a key target for liquidation or disposal.

When using a Kanban system, what event triggers the replenishment of parts?

Answer: Consumption of parts at the production point

Kanban is a pull system where actual consumption at the point of use signals upstream stages to produce or deliver a fixed quantity of replacement parts.

Which statistical distribution is most commonly used to model demand variability when calculating safety stock?

Answer: Normal (Gaussian) distribution

The normal distribution is widely used for safety stock calculations because demand variability, especially for high-volume items, tends to approximate a bell curve.