Operations Management Study Set 1

One important use of inventories in manufacturing is to decouple operations through the use of work in process inventories.

The objective of inventory management is to minimize the cost of holding inventory.

A retail store that carries twice the inventory as its competitor will provide twice the customer service level.

The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

The two main concerns of inventory control relate to the costs and the level of customer service.

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.

In the EOQ formula, holding costs under 10% are expressed as percentages, above 10% are expressed as annual unit costs.

DVD recorders would be an example of independent demand items.

Reorder point models are primarily used for dependent demand items.

An example of inventory holding cost is the cost of moving goods to temporary storage after receipt from a supplier.

Decoupling operations applies to the railroad industry.

Interest, insurance, and opportunity costs are all associated with holding costs.

The A-B-C approach involves classifying inventory items by unit cost, with expensive items classified as 'A' items and low cost items classified as 'C' items.

An inventory buffer adds value and lowers cost in all supply chains.

In the A-B-C approach, C items typically represent about 15 percent of the number of items, but 60 percent of the dollar usage.

EOQ inventory models are basically concerned with the timing of orders.

The average inventory level is inversely related to order size.

The average inventory level and the number of orders per year are inversely related: As one increases, the other decreases.

The EOQ should be regarded as an approximate quantity rather than an exact quantity.Thus, rounding the calculated value is acceptable.

Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost.