Inventory & Supply Chain Management Flashcards

A company's annual demand for an item is 10,000 units, ordering cost is $50 per order, 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 supply chain strategy involves producing goods only when a customer order is received, minimizing finished goods inventory?

Answer: Make-to-order (MTO)

Make-to-order (MTO) means production begins only after a confirmed customer order, keeping finished goods inventory near zero.

What does the term 'bullwhip effect' describe in supply chain management?

Answer: Demand variability amplification moving upstream in the supply chain

The bullwhip effect describes how small demand fluctuations at the retail level are amplified into large order swings at the supplier level.

A buyer calculates that a product has a holding cost rate of 25% of unit value. If the unit cost is $40, what is the annual holding cost per unit?

Answer: $10

Annual holding cost per unit = 25% × $40 = $10.

Which inventory classification method groups items into categories A, B, and C based on annual dollar usage?

Answer: ABC analysis

ABC analysis categorizes inventory by annual dollar value, with 'A' items representing the highest value requiring closest management.

In a vendor-managed inventory (VMI) arrangement, who is responsible for monitoring stock levels and triggering replenishment?

Answer: The supplier

In VMI, the supplier monitors the buyer's inventory levels and initiates replenishment orders without requiring buyer action.

Which metric measures the number of times inventory is sold and replaced over a specific period?

Answer: Inventory turnover ratio

Inventory turnover ratio = Cost of Goods Sold ÷ Average Inventory, showing how many times stock cycles through in a period.