Inventory Management (Cambridge (CIE) A Level Business): Flashcards
Exam code: 9609
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Define inventory.
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Cards in this collection (26)
Define inventory.
Inventory is the goods and materials a business holds for resale or for use in production.
What are the four types of inventory?
The four types of inventory are raw materials, components, work-in-progress and finished goods.
True or False?
Holding inventory increases the risk of spoilage and shrinkage.
True.
The more inventory a business holds, the greater the risk of spoilage and shrinkage, which increases costs.
What are the benefits of holding inventory?
Products are available when needed, improving customer satisfaction. Bulk buying can reduce unit costs, and production is not held up by supply issues.
Define supply chain.
The supply chain is the network of organisations, people, activities and resources that move a product from its basic raw material right through to the final customer.
What is the role of supplier networks in supply chain management?
Supplier networks involve developing strong relationships with suppliers who are willing to work collaboratively to improve quality.
How does an effective supply chain give a business greater resilience to shocks?
A well-planned supply chain includes backup suppliers and effective data sharing, so the business can adapt when something goes wrong.
The ___________ is the inventory level at which a business places a new order with its supplier.
The reorder level is the inventory level at which a business places a new order with its supplier.
Define lead time.
Lead time is the length of time from the point of inventory being ordered from the supplier to it being delivered.
An inventory control diagram shows a maximum inventory level of 1,000 units and a buffer level of 200 units. What is the reorder quantity?
The reorder quantity is 800 units. This is the maximum inventory level minus the buffer level (1,000 − 200).
True or False?
On an inventory control diagram, the inventory line slopes upwards as inventory is used up.
False.
The line slopes downwards as inventory is used up. It shoots upwards when a delivery arrives from the supplier.
Define buffer inventory.
Buffer inventory is a quantity of inventory kept in case of shortages; it is the lowest level to which a business is willing to allow inventory to fall.
Why does holding buffer inventory have an opportunity cost?
Buffer inventory ties up capital that could be invested in other areas of the business.
Buffer inventory can become ______ if demand for a particular product or input declines.
Buffer inventory can become obsolete if demand for a particular product or input declines.
Define just-in-time (JIT).
Just-in-time (JIT) is an approach where raw materials and components are ordered as required and delivered just in time to be used in production.
What qualities do suppliers need for a JIT approach to work?
JIT suppliers must be flexible and reliable. They are often in close proximity to their customer and may hold inventory on its behalf.
True or False?
A JIT approach allows a business to benefit fully from bulk buying economies of scale.
False.
Because inventory is ordered in small quantities as required, bulk buying economies of scale are not generally possible under JIT.
How does a JIT approach improve cash flow?
Money is not tied up in inventory, so it can be put to other uses in the business.
Under JIT, the frequent ordering of inventory leads to high ____________ costs.
Under JIT, the frequent ordering of inventory leads to high administration costs.
Define just-in-case inventory management.
Just-in-case inventory management involves a business holding a quantity of raw materials, components or finished goods as buffer inventory in case of shortages.
How does a just-in-case approach help avoid extreme price fluctuations?
Holding buffer inventory avoids shortages, which would otherwise cause extreme price fluctuations.
True or False?
A just-in-case approach removes the risk of inventory becoming obsolete.
False.
Buffer inventory can become obsolete if demand for the product or input declines.
Why does JIT encourage a right-first-time approach to production?
There is no buffer inventory to fall back on, so production teams must work efficiently and avoid errors.
Under JIT, workers often have more responsibility and take part in continuous improvement, known as ____.
Under JIT, workers often have more responsibility and take part in continuous improvement, known as Kaizen.
How does JIT affect the use of factory space?
With fewer storage needs, factory space can be better used for production activities.
True or False?
A JIT approach can reduce the risk of overproducing unpopular products.
True.
JIT lets a business adapt quickly to shifts in consumer demand, so it is less likely to make products customers do not want.
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