## Answers 1. are the questions of inventory? 1.What to order** 2.How much to order** 3.When to order?** 4. **From whom to order?** --- ### 2. Which one of these questions is not in most textbooks? - **From whom to order?** (Most textbooks focus on what, how much, and when—not the supplier selection.) --- ### 3. If a company is working under a certain lead time schedule, what is the reorder point for the following information? - **Lead Time = 48 hours** - **Demand = 30 per hour** **Reorder Point = Lead Time × Demand = 48 × 30 = 1,440 units** --- ### 4. What would the new reorder point be if the company adds a 5 hour safety stock for this item? - **Safety Stock = 5 × 30 = 150 units** - **New Reorder Point = 1,440 + 150 = 1,590 units** --- ### 5. When should a company consider adding safety stock to their inventory levels? - When demand or supply is uncertain, or to protect against stockouts caused by delays or variability. --- ### 6. Why would a company use inventory to cover up inefficiencies in their supply chains? Is this a good idea or a bad idea? - Companies may use extra inventory to mask issues like unreliable suppliers, process delays, or forecasting errors. - **Bad idea:** Hides problems instead of fixing them and increases costs. --- ### 7. Given the following information, calculate the EOQ: - **Annual demand = 2,100,000** - **Cost of ordering = $52** - **Carrying costs = $1%** - **Item cost = $525** #### EOQ Formula: \[ EOQ = \sqrt{\frac{2DS}{H}} \] Where: - \( D = \) Annual demand - \( S = \) Ordering cost - \( H = \) Holding cost per unit per year \[ H = 1\% \times \$525 = \$5.25 \] \[ EOQ = \sqrt{\frac{2 \times 2,100,000 \times 52}{5.25}} \] \[ = \sqrt{\frac{218,400,000}{5.25}} \] \[ = \sqrt{41,600,000} \] \[ \approx 6,447 \text{ units} \] --- ### 8. Using the information in #7, what is the number of annual orders? \[ \text{Number of Orders} = \frac{\text{Annual Demand}}{EOQ} = \frac{2,100,000}{6,447} \approx 326 \text{ orders} \] --- ### 9. Exponential Smoothing Forecast & EOQ Calculation #### a. Exponential Smoothing (α = .6): Given sales: - 2022: 2,000,000 - 2023: 1,500,000 - 2024: 2,100,000 **2023 forecast (F2023, assume F2022 = 2,000,000):** \[ F_{2023} = \alpha \times D_{2022} + (1-\alpha) \times F_{2022} \] \[ = .6 \times 2,000,000 + .4 \times 2,000,000 = 2,000,000 \] **2024 forecast:** \[ F_{2024} = .6 \times 1,500,000 + .4 \times 2,000,000 = 900,000 + 800,000 = 1,700,000 \] **2025 forecast:** \[ F_{2025} = .6 \times 2,100,000 + .4 \times 1,700,000 = 1,260,000 + 680,000 = 1,940,000 \] #### b. EOQ for 2025: \[ EOQ = \sqrt{ \frac{2 \times 1,940,000 \times 52}{5.25} } \] \[ = \sqrt{ \frac{201,680,000}{5.25} } \] \[ = \sqrt{38,414,286} \] \[ \approx 6,200 \text{ units} \] --- ### 10. How does the concept of inventory management relate to the six rights in perfect order fulfillment? Inventory management supports the six rights: - **Right product** (correct items are stocked) - **Right quantity** (avoiding over/understock) - **Right place** (inventory in correct locations) - **Right time** (items available when needed) - **Right condition** (items well-preserved) - **Right cost** (minimizing carrying and ordering costs) --- ### 11. What is the inventory turns for the AMB Company given the following data? - **Inventory value = 32,000,000** - **Cost of Goods Sold = 1,000,250,005** \[ \text{Inventory Turns} = \frac{\text{COGS}}{\text{Average Inventory}} \] \[ = \frac{1,000,250,005}{32,000,000} \approx 31.26\ \text{turns} \] --- ### 12. What is Vendor Managed Inventory and what is the advantage of VMI? - **Vendor Managed Inventory (VMI):** The supplier manages inventory levels for the customer. - **Advantages:** Reduces stockouts, improves supply chain efficiency, lowers inventory costs, and strengthens supplier-customer collaboration. --- ## Final Summary This set of questions covers key concepts in inventory management, including the main questions of inventory control, calculation of reorder points and EOQ, the use of safety stock, and the implications of using inventory to mask supply chain inefficiencies. Calculations applied concepts like EOQ and exponential smoothing. The importance of inventory management in achieving the six rights of order fulfillment and practices like Vendor Managed Inventory (VMI) were also explored, highlighting their benefits for supply chain efficiency.

# Summary of Inventory Management Questions ## 1. Questions of Inventory Management Four key questions guide inventory management: what to order, how much to order, when to order, and from whom to order. The focus is primarily on the first three questions in most textbooks. ## 2. Textbook Focus The question "From whom to order?" is often less emphasized in textbooks. Most resources concentrate on the operational aspects of inventory management. ## 3. Reorder Point Calculation Given a lead time of 48 hours and a demand of 30 units per hour, the reorder point is calculated as 1,440 units. This indicates when new inventory should be ordered to prevent stockouts. ## 4. New Reorder Point with Safety Stock Adding a 5-hour safety stock increases the reorder point to 1,590 units. This adjustment helps mitigate risks associated with demand variability. ## 5. When to Add Safety Stock Companies should consider adding safety stock when demand or supply is uncertain. This strategy is essential to avoid stockouts due to unforeseen circumstances. ## 6. Inventory as a Buffer for Inefficiencies Companies may use inventory to cover up inefficiencies in supply chains, such as unreliable suppliers. This practice is generally considered a bad idea as it obscures underlying issues rather than addressing them. ## 7. EOQ Calculation Using the EOQ formula, the calculated Economic Order Quantity for annual demand of 2,100,000 units is approximately 6,447 units. This helps minimize the total costs associated with ordering and holding inventory. ## 8. Annual Orders Calculation Based on the EOQ of 6,447 units, the estimated number of annual orders is about 326. This quantifies how frequently inventory should be replenished. ## 9. Exponential Smoothing Forecast Exponential smoothing forecasts for 2023, 2024, and 2025 yield estimates of 2,000,000, 1,700,000, and 1,940,000 units, respectively. These forecasts guide future inventory decisions based on historical data. ## 10. Inventory Management and Order Fulfillment Inventory management supports the six rights of perfect order fulfillment, ensuring that the right product, in the right quantity, is available at the right place and time. This alignment is crucial for customer satisfaction and operational efficiency. ## 11. Inventory Turns Calculation The inventory turns for AMB Company, given a COGS of 1,000,250,005 and inventory value of 32,000,000, is approximately 31.26 turns. This metric indicates how efficiently the company is managing its inventory. ## 12. Vendor Managed Inventory (VMI) Vendor Managed Inventory (VMI) allows suppliers to manage the inventory levels of their customers, which can lead to reduced stockouts and improved efficiency. The primary advantage of VMI is enhanced collaboration between suppliers and customers, leading to cost reductions.