Inventory & Supply Chain Management Flashcards

What is the primary purpose of safety stock in inventory management?

Answer: To buffer against demand variability and supply uncertainty

Safety stock is held as a buffer to prevent stockouts caused by unexpected demand spikes or supplier delivery delays.

Which supply chain model uses actual downstream demand data to pull inventory through the supply chain rather than pushing based on forecasts?

Answer: Pull system

A pull system (e.g., Kanban) replenishes inventory based on actual consumption signals rather than forecasted demand.

A purchasing professional evaluates a supplier's On-Time Delivery (OTD) rate of 72%. What does this indicate?

Answer: 72% of orders were delivered within the agreed timeframe

OTD rate measures the percentage of orders delivered on or before the promised date, so 72% means 28% were late.

In supply chain risk management, 'single sourcing' creates which type of risk?

Answer: Concentration risk due to dependence on one supplier

Single sourcing creates concentration risk because supply disruption at one supplier can halt the buyer's entire supply of that item.

Which warehousing strategy reduces handling by moving goods directly from inbound receiving to outbound shipping with minimal or no storage?

Answer: Cross-docking

Cross-docking transfers inbound shipments directly to outbound vehicles at a distribution point, eliminating storage time.

What does 'Days Inventory Outstanding (DIO)' measure?

Answer: Average number of days inventory is held before being sold

DIO = (Average Inventory ÷ COGS) × 365, representing how many days on average inventory sits before being sold.

A company switches from quarterly ordering to monthly ordering for a key component. What is the most likely direct effect on inventory costs?

Answer: Holding costs decrease, ordering costs increase

More frequent ordering reduces average inventory held (lower holding costs) but increases the number of orders placed (higher ordering costs).