CHAPTER 3

SAMPLE ACTIVITIES/ASSESSMENTS

1. How is inventory planning for independent demand items different from that for dependent
demand items?

- The main focus of inventory management is maintaining a balance between inventory

levels. Based on the demand pattern that generates the requirement for inventory,
inventories are divided into two categories: independent demand and dependent demand.
Since the entire inventory policy for an item is founded on this distinction, it's critical to
comprehend it. Independent demand is the demand for a finished good, such as a
computer, a bicycle, or a pizza. Demand for subassemblies or component parts, on the
other hand, is known as dependent

2. Do organizations need to carry inventory? Why?

- Yes. Despite the fact that having too much or too little inventory can hurt productivity
and profitability, most firms must always maintain a proper level of inventory. Effective
inventory management lowers expenses, which further maintains the integrity of the
accounts and finances. Inventory management can help to keep track of the inventory and
offers a centralized view of stock, it also controls your costs by making stock reports for
analysis of your inventory, also improves your delivery by managing stock-outs and
meeting customer’s expectation, it also helps manages planning and forecasting by
analyzing the trends, and lastly, reduces the time for managing inventory by keeping
records in place. This can also achieve both efficient and fast operations, at an affordable
cost.

3. What is the relationship between inventory investment and profitability in an organization?

- The business profit and cash flow are directly impacted by the amount invested in
inventory. For a business that sells things, inventory management is essential to its
success. In contrast, if inventory turnover is slower, the profit margin will be reduced.
The higher the inventory turnover, the higher the cost that may be contained to increase a
company's profitability.

4. What are the difficulties in using shortage cost measures in inventory planning models?

- Expenses associated with shortages include time spent while waiting for raw supplies,
shrinkage, theft, and obsolescence costs, idle workers, and missed revenue. Because of
 the increased rivalry in many market categories, applying shortfall cost measures in
inventory planning models presents issues that are made more difficult. As a result,
businesses are vulnerable to more unpredictable demand.

5. Can you identify four alternatives that organizations use as a basis for fixing the order
quantity?

- The Periodic Review (P) System with the periodic review system, determine the quantity
of an item your company has on hand at specified, fixed-time intervals (such as every
Friday or the last day of every month). You place an order for an amount (Q) equal to the
target inventory level (TI), minus the quantity on hand (OH), similar to the min-max
system. The difference is that with the periodic review system. The time between orders
is constant (such as every hour, every day, every week, or every month) with varying
quantities ordered. The min-max system varies both the time between orders and the
quantities ordered.

6. On what basis would you recommend the periodic review system of inventory control?

- The periodic inventory method offers the benefit of eliminating the requirement for
separate accounting for raw materials, work in progress, and finished goods inventories.
Selective inventory control also enables you to set priorities since the more efficiently
your inventory is maintained, the less money will be required to maintain it. This extra
cash may then be used to increase your practice's retained earnings.

7. Why should organizations adopt a selective system of inventory control?

- The better your inventory management, the lower the cost will be, which will free up
more money to go toward retained earnings and be reinvested back into your business.
Additionally, you can prioritize using selective inventory control.

8.If you were asked to recommend a suitable classification scheme, how would you go about
the task?

- An arrangement or division of things into groups based on traits they share is called a
classification scheme. A classification scheme provides descriptive information about the
grouping or arrangement of objects. I would recommend the uniform functional
classification scheme (FCS) for records since it is one of the most important tools in
information and records management in organizations.

9. What is the relationship between the service level and safety stock?
- the stock level in a corporation dictates the service level. The safety stock level must be
sufficient to meet customer demand, cover vendor delivery periods, and avoid making
your business lose money due to high carrying costs so the higher the desired service
level, the more safety stock is required.