Part 4 : Distribution & Customer Support.

Ch.3 Distribution Inventory.

Edited by Dr. Seung Hyun Lee (Ph.D., CPL)

IEMS Research Center, E-mail : lkangsan@iems.co.kr
 Functions of Inventory.
[Coyle, pp186-281]
Inventory Cost in Total Logistics Cost.
Units : $ Billion.

Carrying Costs - $ 1,376 Trillion All Business Inventory

․ Interest 70 (7.6%)
․ Taxes, obsolescence, depreciation, insurance 187 (20.3%)
․ Warehousing 75 (8.1%)
Transportation Costs.
․ Truck-intercity 300 (32.6%)
․ Truck-local 150 (16.3%)
․ Railroads 36 (3.9%)
․ Water (international 16, domestic 6) 22 (2.4%)
․ Oil pipelines 9 (0.98%)
․ Air (international 7, domestic 19) 26 (2.8%)
․ Forwarders 6 (0.65%)

Shipper-Related Costs. 5 (0.54%)

Logistics Administration. 35 (3.8%)

TOTAL LOGISTICS COST 921 (100%)

Source : Robert Delaney, Cass Information Systems, 2000.
- 1 -
 Functions of Inventory.
[Coyle, pp186-281]
Inventory Functions.
Cycle Stock.
․ Batching economies or cycle stocks usually arise from three sources -
acquisition, production, and/or transportation.
․ In the acquisition or purchasing area, it is not unusual to have a schedule of
prices that reflects the quantity purchased, that is, lower unit price for larger
quantities.
․ A related discount situation occurs with transportation economies can be very
complementary. That is, when companies buy larger quantities of raw
materials or suppliers, they can ship larger quantities, which can result in
transportation discount.
․ The third batching economy is associated with production or manufacturing.
Long production runs or batches result in cycle stocks that must be stored
until they are sold. Traditionally, companies rationalized long production runs
to lower limit costs without really evaluating their inventory carrying cost.
which can be high for finished good.

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 Functions of Inventory.
[Coyle, pp186-281]
Inventory Functions.
Safety Stock.
․ Fluctuation stock is a cushion of protection against uncertainty in the demand
or in the replenishment lead time.
․ On the demand or customer side, there is usually uncertainty about how much
customer will buy and when. Forecast demand is a common approach to help
resolve uncertainty, but it is never completely accurate.
․ On the supply side, there may be uncertainty about obtaining what is needed
from vendors or suppliers and about how long it will take for fulfilling of the
order. Uncertainty can arise from transportation in terms of getting reliable
delivery.

- 3 -
 Functions of Inventory.
[Coyle, pp186-281]
Inventory Functions.
In-transit and In-process Inventory.
․ The transportation alternatives available for shipping freight may have different
transit time as well as other service level differences, for example, reliability
and damage rates. The longer freight is in transit, the higher the inventory
costs and, probably, the customer service related costs.

․ Work-in-process inventory is associated with manufacturing/production.

Significant amounts of inventory can be accumulated in production facilities,
particularly in assembly operation such as those of automobiles and computers.
The length of time work-in-process inventory sits in a production facility waiting
to be included in the assembly of a particular product should be carefully
evaluated in relationship to scheduling techniques and the actual production or
assembly/technology.

- 4 -
 Functions of Inventory.
[Coyle, pp186-281]
Inventory Functions.
Anticipation Stock.
․ Seasonality can occur on the inbound side of a company's logistics system or
the outbound side or both. Usually, companies that are faced with seasonality
of supply and/or demand need to carefully analyze how much inventory they
should accumulate.

․ Sometimes transportation can cause seasonality, particularly if water

transportation is used. Rivers and lakes can freeze in the northern part of the
hemisphere, which may interrupt to shipment of basic raw materials causing a
need for accumulation of inventory during the period that the service is
interrupted. The steel industry faced this problem in the past with iron ore
moving across the Great Lakes of down the St. Lawrence Seaway.

- 5 -
 Functions of Inventory.
[Coyle, pp186-281]
Inventory Functions.
Hedging Stock.
․ A fifth reason for inventory arise when companies anticipate some unusual
event, for example, strike, significant price increase, a major shortage of supply
due to weather or political unrest, and so on. In such situations, companies
may accumulate inventory to "hedge" against the unique event. Again, an
analysis should be undertaken to assess the risk, probability, and cost of the
inventory.

- 6 -
 Inventory Cost.
[Coyle, pp186-281]
Inventory Carrying Cost.
Capital cost.
․ Sometimes called the interest or opportunity cost, this cost type focuses upon
what having capital tied up in inventory costs a company. The capital cost is
frequently the largest component of inventory carrying cost.

Storage Space Cost.

․ Storage space cost includes handling costs associated with moving product into
and out of inventory, as well as storage costs such as rent, heating, and
lighting.

Inventory Service Cost.

․ Another component of inventory carrying costs includes insurance and taxes.
Depending upon the product value and type, the risk of loss or damage may
require high insurance premiums.

- 7 -
 Inventory Cost.
[Coyle, pp186-281]
Inventory Carrying Cost.
Inventory Risk Cost.
․ This final major component of inventory carrying cost reflects the very real
possibility that inventory dollar value may decline for reasons largely corporate
control.

․ Any calculation of inventory risk costs should include the costs associated
with obsolescence, demage, pilferage, theft, and other risks to inventoried
product. The extent to which inventoried items are subject to such risks will
affect the inventory value and thus the carrying costs.

- 8 -
 Inventory Cost.
[Coyle, pp186-281]
Calculating Inventory Carrying Cost.

Average Inventory Total Annual

No. of Orders
Order Period Inventory Carrying
per year
Units Value Cost

1 week 52 50 $ 5,000 $ 1,250

2 week 26 100 10,000 2,500

4 week 13 200 20,000 5,000

13 week 4 650 65,000 16,250

26 week 2 1,300 130,000 32,500

52 week 1 2,600 260,000 65,000

※ One week's inventory supply is 50 units.

※ Value per unit is $100.
※ Percentage carrying cost is assumed to be 25%

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 Inventory Cost.
[Coyle, pp186-281]
Order/Setup Cost.
Order Cost.
․ The costs associated with ordering or acquiring inventory have both fixed and
variable components. The fixed element may refer to the cost of the
information system, facilities, and technology available to facilitate
order-placement activities. This fixed cost remains constant in relation to the
number of orders placed.

․ Some of the types of activities that may be responsible for these costs include
: (1) reviewing inventory stock levels, (2) preparing and processing order
requisitions or purchasing orders, (3) preparing and processing receiving
reports, (4) checking and inspecting stock prior to placement in inventory, and
(5) preparing and processing payment.

- 10 -
 Inventory Cost.
[Coyle, pp186-281]
Order/Setup Cost.
Setup Cost.
․ Production setup costs may be more obvious than ordering or acquisition
costs. Setup costs are expense incurred each time a company modifies a
production line to produce a different item for inventory.
․ The fixed portion of setup cost might include use of the capital equipment
needed to change over production facilities, while the variable expense might
include the personnel costs incurred in the process of modifying or changing
the production line.

- 11 -
 Inventory Cost.
[Coyle, pp186-281]
Order/Setup Cost and Order Frequency.
No. of Orders Total Annual Inventory
Order Period
per year Carrying Cost
1 week 52 $ 10,400

2 week 26 5,200

4 week 13 2,600

13 week 4 800

26 week 2 400

52 week 1 200

※ Assuming a cost per order of $200

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 Inventory Cost.
[Coyle, pp186-281]
Inventory Cost Relationship.

- 13 -
 Inventory Classification.
[Coyle, pp186-281]
ABC Classification.
Pareto's Law, or the "80-20 Rule."
․ Actually, ABC analysis is rooted in Pareto's law, which separates the "trivial
many" from the "vital few." In inventory terms, this suggests that a relatively
small number of items or stock-keeping units(SKUs) may account for a
considerable impact or value.

- 14 -
 Inventory Visibility.
[Coyle, pp186-281]
Inventory Visibility.
Consideration for Inventory Visibility.
․ Inventory visibility can be interpreted simply as the ability of an organization to
"see" inventory on a real-time basis throughout its logistics and/or supply chain
system.

․ Inventory visibility implies having knowledge of not only "where" inventory(raw

materials, supplies, work in progress, finished goods, etc.) is in the system
(vendor locations, plants, warehouses, customer locations, in transit with
carriers, etc.) but also how much is "there" (level), to whom it may be
promised, what orders need to be fulfilled, when shipments can be delivered.

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 Inventory Visibility.
[Coyle, pp186-281]
Inventory Visibility.
Consideration for Inventory Visibility.
․ Keeping inventory visible in the supply chain is a special challenge. Essentially,
what is required is :
- Tracking and tracing inventory status at the SKU/line item detail level for all
order.
- Providing summary and detailed reports of shipments, orders, products,
transportation equipment, location, and trade lane activity.
- Notification of failures and potential delays in the flow of inventory throughout
the system.

- 16 -
 Inventory Visibility.
[Coyle, pp186-281]
Inventory Visibility.
Benefits for Inventory Visibility.
․ Improved customer service through on-time deliveries of complete order to
customer with visibility into order at all stages of the supply chain.

․ Decreased cost-of-sales by lowering inventory holding costs, minimizing errors

and back orders, and decreasing obsolete inventory.

․ Improvement of vendor/supplier relations and cost by providing accurate, timely

information regarding requirements.

․ Increased return on assets and shareholder value by lowering investment in

inventory, reducing investment in fixed facilities necessary for holding inventory,
and turning inventory faster.

- 17 -
 Inventory Visibility.
[Coyle, pp186-281]
Inventory Visibility.
Benefits for Inventory Visibility.
․ Improved cash-to-cash and/or order-to-cash cycle by faster flow of inventory
through the supply chain and by faster order fulfillment.

․ Ability to proactively respond and facilitate service recovery when delays and/or
stockouts are probable by making adjustment in the system and responding
quickly to service demands.

․ Improved performance metrics for overall supply chain, carriers, vendors,

logistics service providers, and even customers by having timely accurate
information available.

- 18 -
 Inventory Performance.
[Coyle, pp186-281]
Inventory Performance Measures.
Customer Service.
․ The first question to raise is whether the company's customer are satisfied
with existing levels of customer service.
- How frequently a need for back ordering or expediting occurs ?

․ The more frequently these occur, the less effective an inventory system is
presumed to be.

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 Inventory Performance.
[Coyle, pp186-281]
Inventory Performance Measures.
Inventory Investment.
․ The second question involves inventory turnover measures calculated for an
entire product line and for individual products and product groping.
․ Inventory turnover, sometimes referred to as inventory velocity, is calculated by
dividing annual sales in dollars by average inventory measured in dollars.
Cost of Goods Sold
Inventory Turns =
Average Inventory

(Actual Turns - Target Turns)

Inventory Turns Deviation from Target = × 100
Target Turns

․ Assuming that the inventory valuation bases are equivalent (e.g., both are
valued in terms of retail price or cost of goods sold), the resulting figure
measures how many times per year average inventory turns over.

- 20 -
 Inventory Performance.
[Coyle, pp186-281]
Inventory Performance Measures.

Saving Inventory Dollars by Inventory Turns

Source : Cass Information Services and The Ohio State University, 1993.

Past and Projected Inventory Turnover of Finished Goods.

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 Inventory Planning.
[Coyle, pp186-281]
Fixed Order Quantity : EOQ.
The principal assumptions of the simple EOQ model.
1. A continuous, constant, and known demand rate.
2. A constant and known replenishment or lead time.
3. The satisfaction of all demand.
4. A constant price or cost that is independent of the order quantity or time.
(e.g., purchase price or transport cost)
5. No inventory in transit.
6. One item of inventory or no interaction between items.
7. Infinite planning horizon.
8. No limit on capital availability.

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 Inventory Planning.
[Coyle, pp186-281]
Fixed Order Quantity : EOQ.
Calculating EOQ.

․ A = Annual rate of demand or requirement for period

(units)
․ Q = Quantity ordered lot size (units)
․ S = Cost of placing an order or setup cost ($ per order)
․ C = Value or cost of one unit of inventory ($ per unit)
․ i = Carrying cost per dollar value of inventory per year
(% of product value)
․ t = Time (days)

Total Inventory Costs = Annual Ordering Cost + Annual Carrying Cost.

A Q
= × S + × C × i
Q 2

2×A×S
Economic Order Quantity (EOQ) = C×i

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 Inventory Planning.
[Coyle, pp186-281]
The Condition of Uncertainty.

Fixed Order Quantity Model Under Conditions of Uncertainty

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 Inventory Planning.
[Coyle, pp186-281]
The Condition of Uncertainty.
Demand Variations.
․ First, customers usually purchase products somewhat sporadically. The usage
rates of many items vary depending on weather, social needs, psychological
needs, and a whole host of other factors. As a results, sales of most items
vary day by day, week by week, or season by season.

Transit Time Variations.

․ In addition, several factors can affect lead time or replenishment time. for
example, transit times can and do change despite of carrier efforts.

Order Processing Time Variations.

․ Another factor that can cause variation in lead time or replenishment time is
order processing and transmittal. Mailed order can cause delays. Clerks can
overlook a particular order or develop undesirable backlogs. For a firm
producing or manufacturing an item to order, production schedules can vary for
a number of reasons.

- 25 -
 Inventory Planning.
[Coyle, pp186-281]
The Condition of Uncertainty.
Uncertainty of Demand and LT.
․ If demand and lead time are constant
and known in advance, calculating
reorder point would be easy.

․ Now that both demand and lead time

may vary, the first step is to study the
likely distribution of demand during the
lead time. Specially, we must accurate
estimate the mean and standard
deviation of demand during lead time.

Normal Distribution.

- 26 -
 Inventory Planning.
[Coyle, pp186-281]
Calculating Safety Stock.
Reorder Point and Safety Stock with Uncertainty.
․ ROP = DDLT + SS
․ SS = Service factor × σ
where DDLT is demand during lead time.
/ SS is safety stock.
where σ is standard deviation for demand.

- 27 -
 Inventory Planning.
[Coyle, pp186-281]
Calculating Safety Stock.
Demand and Replenishment Uncertainty.
․ ROP = R ( X LT ) + SS
․ SS = Service Factor × σ

where X is mean demand during lead time.

σ is standard deviation of demand during lead time.
2 2 2
(σ = X LT (σ R ) + R (σ LT ) )

X LT is mean lead time length.

σ LT is standard deviation of lead time length.

R is mean daily demand.

σ R is standard deviation of daily demand.

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 Inventory Planning.
[Coyle, pp186-281]
Fixed Order Interval Approach.

Fixed Order Interval Model (with Safety Stock).

․ The Target Replenishment Level (TGT).

TGT = D(R + L) + SS
where D = Average demand per period.
. R = Review period.
. L = Lead time.
. SS = Safety stock.

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 Additional Approaches.
[Coyle, pp186-281]
Just In Time.
JIT Concept.
․ Generally, JIT systems are designed to manage lead times and to eliminate
waste. Ideally, product should arrive exactly when a firm needs it, with no
tolerance for late or early deliverables. Many JIT systems place a high priority
on short, consistent lead times. This may help to explain the recent popularity
of "quick response" system for inventory.

Move card path. When a container of
parts is selected for use from an
inbound stockpoint, the move card is
removed from the container and taken
to the outbound stockpoint of the
preceding work center as authorized to
pick another container of parts.
Production card path. When a container
of parts is picked from an outbound
stockpoint, the production card is
removed and left behind as authorizaton
to make a standard container of parts
to replace the one taken.

JIT Kanban System : Move and Production Card.

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 Additional Approaches.
[Coyle, pp186-281]
Material Requirement Planning.

- 31 -
 Additional Approaches.
[Coyle, pp186-281]
Material Requirement Planning.

․ Order Quantity : 50 units

․ On-hand Balance : 10
․ Safety Stock : 0
․ Allocated Qty : 0
․ Lead-Time : 1 weeks Periods
․ Low Level Code : 0 1 2 3 4 5
Gross Requirements 25 0 15 20 30
Scheduled Receipts 50
Projected Available 10 35 35 20 0 20
A
Net Requirements 30
Planned Order Receipt 50
Planned Order Release 50

- 32 -
 Additional Approaches.
[Coyle, pp186-281]
Distribution Requirement Planning.
DRP Concept.
․ DRP systems are time phased models that include demand forecasts, purchase
orders, and customer orders for a facility.

․ A system of determining demands for inventory at distribution centers,

consolidating the demand information backwards, and acting as input to the
production and materials system. (DRPⅠ)

․ Distribution resource planning (DRPⅡ) is an extension of DRPⅠ. Distribution

resource planning extends DRPⅠ to include the planning of key resources in
a distribution system-warehouse space, manpower levels, transport capacity,
and financial flows.

- 33 -
 Additional Approaches.
[Coyle, pp186-281]
Distribution Requirement Planning.

DRP Planning Process.

- 34 -
 Additional Approaches.
[Coyle, pp186-281]
Conceptual Design of Integrated MRP/DRP System .

- 35 -
 Additional Approaches.
[Coyle, pp186-281]
Conceptual Design of Integrated MRP/DRP System .
Benefits of An Integrated Inventory Planning System.
․ The major marketing benefits.
1. Improved service levels that increase on-time deliveries and decrease customer
complaints.
2. Improved and more effective promotional and new-product introduction plans.
3. Improved ability to anticipate shortages so that marketing efforts are not expended on
products with low stock.
4. Improved inventory coordination with other enterprise functions, since DRP facilities a
common set of planning numbers.
5. Enhanced ability to offer customers a coordinated inventory management service.

․ The major logistics benefits.

1. Reduced distribution center freight costs resulting from coordinated shipments.
2. Reduced inventory levels, since DRP can accurately determine what product is
needed and when.
3. Decreased warehouse space requirements because of inventory reductions.
4. Reduced customer freight cost as a result of fewer back-orders.
5. Improved inventory visibility and coordination between logistics and manufacturing.
6. Enhanced budgeting capability, since DRP can effectively simulate inventory and
transportation requirements under multiple planning scenarios.

- 36 -
 Performance Check.

1. What is the impact on the firm when the firm orders smaller quantities on a more
frequent basis ?
Ⅰ. Increased transportation costs.
Ⅱ. Decreased transportation costs.
Ⅲ. Higher ordering costs.
Ⅳ. Reductions in inventory investment.

A. Ⅰ, Ⅲ B. Ⅱ, Ⅲ C. Ⅰ, Ⅲ, Ⅳ D. Ⅱ, Ⅲ, Ⅳ

2. Given the same customer service level, low inventory carrying costs lead to
A. Multiple warehouse. B. Faster modes of transportation.
C. Fewer warehouse. D. None of the above.

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 Performance Check.
3. Knowledge of inventory carrying costs is necessary to accurately determine :
A. Lot sizing. B. Lead time.
C. Competitor's revenue and profit margin. D. Storage location practice.

4. Inventory carrying costs should include only those costs that vary with the quantity of
inventory and that can be categorized into which groups :
Ⅰ. Capital costs.
Ⅱ. Material planning cost.
Ⅲ. Inventory risk costs.
Ⅳ. Lost capacity costs.
Ⅴ. Storage space costs.

A. Ⅰ, Ⅱ, Ⅲ B. Ⅰ, Ⅲ, Ⅴ C. Ⅰ, Ⅲ, Ⅳ, Ⅴ D. Ⅰ, Ⅱ, Ⅲ, Ⅳ, Ⅴ

- 38 -
 Performance Check.
5. Which one of the following is NOT a distinct costing alternative under direct costing ?
A. Actual direct costing. B. Standard direct costing.
C. Absorption costing. D. First-in-first-out (FIFO).

6. Inventory risk costs typically include :

A. Obsolescence and damage. B. Shrinkage and teardown.
C. Shrinkage and relocation. D. Theft and field failure costs.

7. The company has just negotiated to have all of the electronic components purchased
from a local distributor changed to consignment. Which of the following actions need to
be taken prior to the next receipt for the existing inventory ?
A. Convert the balances to consignment to standardize on the inventory classification.
B. Issue the balances to work in process to zero out raw material inventory.
C. Record the balances as company-owned inventory so costs can be segregated.
D. Reduce the unit costs to zero to eliminate payments to the supplier upon issue.
- 39 -
 Performance Check.
8. ABC classification of inventory is a means to categorize materials in terms of which
of the following ?
A. Function. B. Type.
C. Storage requirements. D. Annual usage value.

9. Which of the following statements is TRUE about reaching a high level inventory
record accuracy ?
A. Inventory levels will usually be reduced
B. Safety stock negates the need to be very accurate
C. The savings would be small and therefore not worth the effort
D. It is difficult to achieve and expensive to maintain

- 40 -
 Performance Check.
10. During inflationary periods, which of the following statements would be true if the
LIFO method of inventory valuation is used ?
A. Inventory value would be lower, cost of goods sold higher
B. Inventory value would be higher, cost of goods sold higher
C. Inventory value would be higher, cost of goods sold lower
D. None of the above

11. Which of the following is a service level measurement method ?

A. Amount of dead stock.
B. Order fill rate for each supplier.
C. Comparison of actual versus targeted inventory levels.
D. Percent of stock-outs caused by improved purchasing methods.

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 Performance Check.
12. Which of the following are measures used to control inventory ?
A. Inventory turnover rates.
B. Number of stock-outs resulting form late deliveries.
C. Order fill rate for each suppliers.
D. Variability in order-cycle time for each supplier.

13. A method of inventory control with a focus on waste management : a program from
which to eliminate non-value added activities with the objective of producing high quality
products : "zero-defect", are all definition of :
A. Just-in-Time. B. Kanban.
C. Stockpoint management. D. Total Quality Management.

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 Performance Check.
14. Which characteristic is more desirable for controlling production within a pull system ?
A. Flexible capacity
B. Cycle counts
C. Periodic inventory checks
D. Management performance check

15. The process of using planned order releases to calculate gross requirements may
continue on down through the bill of materials for many levels, until one arrives at the
purchase level for every part needed in the manufacturer of a product. This process is
called :
A. Lead-time offset. B. Explosion.
C. Planned order receipt. D. MRP worksheet.

- 43 -
 Performance Check.
16. Investment in inventory is normally justified on basis of all the following, EXCEPT :
A. Minimum stockage at inventory points near market centers, based on the JIT
approach.
B. Provide a hedge against price increase.
C. Provide a buffer against seasonal demands.
D. Promote production efficiency.

17. Stocks for which there have been no demand for a specified period are termed as :
A. Random demand support stocks. B. Speculative stocks.
C. Risk contingency stockage. D. Dead stocks.

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 Performance Check.
18. Given the following item characteristics :
․ Order placement cost : $50 per order.
․ Annual demand : 300 units.
․ Unit cost : $80 per unit.
․ Inventory carrying rate : 5.0%

The Economic Order Quantity is :

A. 20 units. B. 62 units. C. 87 units D. 7500 units.

19. The LIFO inventory valuation method :

A. Would be most likely used during periods of cost deflation.
B. Tends to increase materials transfer costs, increase the cost of doing business,
reduce profit margin, and minimize tax liability.
C. Is not used for an item when the FIFO method is applied.
D. Tends to reduce inventory issue value and enhance profit margin.

- 45 -
 Performance Check.
20. The ABC inventory management approach is applied under all the following
circumstances, EXCEPT :
A. Management of SKUs with high cost values per unit.
B. Management of items with costly storage requirements.
C. Management of items with high rates of sale.
D. When a majority of items indicate predominant cost impact on the corporate
system.

21. Materials Requirements Planning consists of all the following, EXCEPT :

A. Preparation of a master production schedule for some period into the future.
B. Preparation of the bill of materials for each production item.
C. Consolidation of the units on the master production schedule into a system-level
requirements schedule, in terms of system quantities and dates needed.
D. The scheduling of component inventory replenishment according to necessary lead
times and economic order, buying or shipping quantities to conform with the
retirement schedule rather than average demand over time.

- 46 -
 Performance Check.
22. The predominant elements of inventory costs are :
A. Order processing or production set-up, investment, warehousing, plus effects of
inventory risks and stock-out.
B. Carrying rate, annual demand, order cost, item cost.
C. Warehousing, transportation, deterioration, pilferage.
D. Lay-in costs, communication cost, transportation cost, material handling cost.

23. Given the following inventory item characteristics.

․ Annual demand : 2,000 units.
․ Holding cost : $1.50 per unit.
․ Order cost : $150.
The EOQ and stock-turn rate, respectively, are :
A. 633 units, 31.25 stock-turn rate. B. 633 units, 3.16 stock-turn rate.
C. 200 units, 4.47 stock-turn rate. D. 200 units, 10.0 stock-turn rate.

- 47 -
 Performance Check.
24. An inventory item has the following attributes.
․ Order quantity : 75 units.
․ Unit cost : $100.00
․ Ordering cost : $150.00
․ Inventory carrying rate : 5%
․ Annual Demand : 1,000 units.
The annual inventory cost is :
A. $3,950 B. $2,187 C. $5,750 D. $2,375

25. Inventory makes it possible for each of a firms plants to specialize in the products
that it manufactures because :
A. Consolidation warehouses allow the firm to disperse manufacturing by plant location
B. The finished products can be shipped to large mixing warehouses from which
customer orders and products for field warehouses can be shipped
C. Savings in transportation costs.
D. Costs of additional handling are low.

- 48 -
 Performance Check.

Solutions :
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
C A A B C A C D A A C A A A B

16 17 18 19 20 21 22 23 24 25
A D C B D C A B B A
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