PGD-SCM

Module 3 Inventory Management – Test Total 10 Marks

All answers must be submitted in Word Document.

Questions

Q 1. It has been said that customer service and inventory investment are two
measurements that cannot be considered separate from one another. Explain.

Q 2. Describe the five general functions of inventory.

Q 3. Explain the concept of stock replenishment.

Q 4. Describe the two forms of inventory demand. Why are they so important to
inventory planners?

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Problems

1. At the year end, the ABC company analyzed its financial situation using the
following results from the past year (expressed in millions).

Cash 17

Accounts receivables 25

Inventory 250

Fixed assets 240

Total assets 532

Sales 600

Total costs (cost of goods, general administration, taxes) = 480

a. What is the net income?

b. What is the return on assets (ROA)?

c. What is the effect on ROA if inventory investment is reduced by 10%?

2. The planner at ABC Electronics is trying to calculate the safety stock and order
point for the 50 inch plasma TV it stocks. After researching past sales, the
planner has determined that weekly sales have been averaging 125 TVs a week
with a standard deviation of 47.47 units. The lead time from the supplier is
currently three weeks. Management has determined that the customer service
level should be set at 98% (2.05 safety factor). The unit cost is $435.00. Round
off all calculations.

a. How much safety inventory should ABC Electronics plan for on its TVs?

b. What would be the order point?

c. What would be the cost for inventory for ABC Electronics for using this order
point?

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3. The executive team at ABC Electronics has determined that they want to
decrease delivery time to their customers. Currently, customers have expected
delivery times of ten days or more. ABC wants to cut this time to 5 days. By
establishing the new objective executives know that other parts of the business
will be affected. Before it is implemented, they are eager to see what the cost-
benefit trade-off is going to be. Using the worksheet below, indicate whether the
plan will increase or decrease the firm’s operational objectives as detailed on the
worksheet.

Business Function Functional Goal Outcome

Operations Low inventory
Sales/Marketing High customer responsiveness
Finance Low operations costs
Operations Low warehouse costs
Sales/Marketing Shorter delivery lead times
Operations Reduced outbound transportation
costs
Operations Reduced inbound transportation
costs