1. What is inventory control?
Answer: Inventory control is the process of reducing inventory costs while remaining responsive to customer demands. By this definition a store would want to lower its acquisition, carrying ordering and stock-out costs to their lowest possible levels. However a store would need to have enough inventories to meet any needs of its customers.
2. What does inventory affect in a store?
Answer: Inventory levels and their values can affect the income of the store, the amount of taxes paid, and the total stocking cost.
3. How can the value of inventory be determined?
Answer: The value can be found using four methods in inventory control. The first is the specific cost in which each item's cost is added together for the inventory's value. A second method is to use the weighted average of the costs for a period to determine value. A third method is first in, first out. In this method value is measured using the latest costs of goods while working towards the beginning of the period until all goods in inventory are valued. The final method is last in, first out. In this method the costs of gods at the beginning of the period are used to determine the inventory's value much like FIFO.
4. What are the important considerations in inventory control?
Answer: For inventory control to work at its best a store must consider the costs of acquisition, carrying, ordering, and stock-out. the store must also look at its reordering system, its budgeting for inventory, insurance and forecasted demand.
5. What are the types of reordering systems that can be used in inventory control?
Answer: There are several types of reordering systems, in this module we discussed three. The fixed order quantity uses fixed quantities of goods ordered at various order points to replenish inventory. The fixed order period use fixed times of reorder with various order quantities to replenish inventory to preset levels. The final system, just in time uses a constant flow of goods to match the level of demand.
6. What is the importance of EOQ?
Answer: The EOQ level is the point at which stocking costs are at their lowest point for a given item.
7. Does the model always work?
Answer: No, the model only works for those cases that meet its assumptions.
8. What makes EOQ work for inventory control?
Answer: The EOQ works if its four assumptions match the case it is used on. The assumptions are: A. Annual demand, carrying costs and ordering costs can be estimated. B. Inventory level is divided by 2, no safety stock, goods used uniformly and are gone by next order. C. Stock-out, customer responsiveness and other costs not considered. D. No quantity discounts.
9. What is the EOQ formula?
Answer: The EOQ formula is the square root of 2 times demand times order completion cost divided by carrying cost. The mathematical formula is square root of 2DS/C.
10. How do you determine the numbers to use in the EOQ formula?
Answer: To determine which numbers to use you must look for the following items. The number of items per order is the quantity(Q). The number of items that can be sold is D. D may be the forecast demand for that particular good. The cost of placing the order is used for S. The final number to find is the carrying cost(C) which is the cost of the item to be held in inventory.
11. If I get a discount will it effect the EOQ model?
Answer: Yes, a discount will cause the basic EOQ model to fail. To use a discount in determine a EOQ you must use the EOQ model with quantity discounts.
12. What if there is no savings or the models produce even results?
Answer: If there is no savings a error in the calculations may have occurred or the model does not fit your case. For instances were the total stocking costs are even you may use either order quantity.
13. If inventory controls are followed, what can I expect?
Answer: By following your inventory policy you should be able to realize important advantages in inventory control. The first is reduced costs for inventories, along with reduced amounts of inventory. Theft and shrinkage should also be reduced if inventory policy is followed. The final benefit will be increased profits for the store.
14. When should a physical inventory be taken?
Answer: A inventory should be taken at least once a year. If items are perishable, seasonal or highly demanded a inventory should be taken more often.
15. Can forecasting help in controlling inventory?
Answer: Yes, through the use of forecasts inventory levels can be set to meet the demands while keeping levels as low as possible.
16. What types of forecasting can I do?
Answer: There are two types of forecasting qualitative and quantitative. Qualitative uses personal opinions to determine forecasts. Quantitative uses numerical data and statistical modeling to determine forecasts.
17. What makes a good forecasting model?
Answer: A good forecast model will have reasonable costs. the accuracy of its forecasts will allow good decision making. The model will have ample data available for its use and a relevant time span. The model finally will have a low interference level.
18. What is interference?
Answer: Interference is a factor in forecasting demand. Interference is made up of all the factors that a forecaster has no control over. Factors that may be considered interference include natural disasters, unusual customer demands, or rare events in the business period.
19. What is a order point?
Answer: A order point is a point in time at which a order is placed to replenish goods in inventory.
20. What is an order quantity?
Answer: An order quantity is the amount of goods that an order requests be shipped to the store.
21. What is lead time?
Answer: Lead time is the period of time from which a order for goods is placed until it is received by the store. Lead time is an important consideration for determining when orders should be placed.
22. Can a computer help in forecasting future demand?
Answer: Yes, In the market today there are many computer software packages that can compute forecasted demand for goods held in inventory.
23. What is demand?
Answer: Demand is the quantity that customers are willing to buy. Demand can be found through forecasting and is needed to find the EOQ level.
24. What is forecasting?
Answer: Forecasting is the process of estimating the future demand of a product.
25. What should be recorded in a physical count of inventory?
Answer: When conducting a physical inventory the classification, location and number in stock of a good should be recorded.
26. When should reorders be placed?
Answer: Times for reordering goods vary dependent on the control system you use and its lead time. In fixed order quantities reorders should be placed when the safety stock is reached. In fixed period systems the reordering is done at set time periods. In just in time systems reordering is based on matching the demand with supply. For just in time a close watch on inventory levels is needed so that reorders are placed before goods are out of stock.
27. What is total stocking cost?
Answer: Total stocking cost is the cost to the store of holding a good in its inventory. The stocking cost consists of the carrying cost times half the quantity in inventory and the order completion cost times demand divided by the quantity. In its mathematical form the cost is represented by TSC=(Q/2)C + (D/Q)S.
28. What do the letters in the EOQ and stocking cost formula stand for?
Answer: The letters in the formulas represent the quantity ordered(Q), the carrying cost of a unit(C), the demand for the units(D) and the cost of completing a order(S).
29. Do I need to recompute stocking costs for the EOQ level?
Answer: Yes, in order to compare stock costs when using the EOQ model you must compute the costs for both the original level and the EOQ level of order quantities.
30. What does EOQ stand for?
Answer: EOQ stands for Economic Order Quantity.
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