Competency 6: Management And Planning

Which of the following is an example of MRO inventory?

Finished goods in a warehouse

Raw materials used in production

Spare parts for manufacturing equipment

Work-in-process items

Spare parts for manufacturing equipment

Which type of inventory is in transit between a manufacturing plant and a distribution center?

Safety stock

Transportation inventory

Cycle stock

Finished goods inventory

Transportation inventory

A toy manufacturer produces and stores toys throughout the year to meet the high demand during the holiday season. What type of inventory does this represent?

Anticipation inventory

Work-in-process inventory

Speculative inventory

Safety stock

Anticipation inventory

What is the primary purpose of safety stock?

To take advantage of bulk discounts

To cover unexpected demand variations

To prepare for plant shutdowns

To reduce inventory investment

To cover unexpected demand variations

A company buys extra raw materials because it anticipates a supplier strike next month. This is an example of:

Cycle stock

Fluctuation inventory

Speculative inventory

MRO inventory

Speculative inventory

What is a key benefit of using cycle counting instead of annual physical inventories?

It reduces the need for safety stock

It reduces operational downtime

It eliminates the need for inventory records

It eliminates the need for suppliers

It reduces operational downtime

A company discovers that several components needed for production are missing from inventory, causing a delay in manufacturing. Which inventory management problem is this an example of?

Overstocking

Excess safety stock

Efficient operations

Poor record accuracy

Lowering the total capital tied up in inventory

A manufacturer works with a supplier who manages inventory levels at the manufacturing plant and automatically replenishes parts when needed. This approach is known as:

Vendor-managed inventory (VMI)

Cycle counting

Anticipation inventory

Safety stock management

Vendor-managed inventory (VMI)

Which two factors contribute to inaccurate inventory records? (Choose Two)

Unauthorized withdrawals

Routine cycle counting

Unsecured stockrooms

Vendor-managed inventory

Unauthorized withdrawals

Unsecured stockrooms

Which two metrics are commonly used to measure inventory performance? (Choose Two)

Employee turnover

Weeks of supply

Inventory turnover

Product defect rate

Weeks of supply

Inventory turnover

Which two objectives are key to inventory management? (Choose Two)

Maximizing inventory levels to prevent stockouts

Providing the desired level of customer service

Keeping safety stock levels equal to demand

Ensuring cost-efficient operations

Providing the desired level of customer service

Ensuring cost-efficient operations

What is a key advantage of using cycle counting instead of periodic counting?

It eliminates the need for inventory records

It reduces the need to shut down operations

It allows companies to hold more safety stock

It only counts inventory once a year

It reduces the need to shut down operations

Which two challenges are associated with periodic counting? (Choose Two)

It often requires stopping production to complete the count

It uses real-time inventory tracking systems

It is typically performed by employees who may not be trained in inventory management

It improves record accuracy after every transaction

It often requires stopping production to complete the count

It is typically performed by employees who may not be trained in inventory management

Raw materials

Purchased items or extracted materials transformed into components or products.

Components

Parts or subassemblies used in the final product. 

Work-in-process (WIP)

Items in process throughout the plant.

Finished goods

Products sold to customers.

Distribution inventory

Finished goods in the distribution system.

Anticipation inventory

Inventory built in anticipation of future demand.

Fluctuation inventory

Provides a cushion against unexpected demand.

Lot-size inventory

A result of the quantity ordered or produced.

Transportation inventory

Inventory in movement between locations.

Speculative inventory

Used to protect against some future event.

Maintenance, repair, and operating (MRO) inventory

Items used in support of manufacturing and maintenance.

Percentage of orders shipped on schedule

A customer service measure appropriate for use when orders have similar value.

Percentage of line items shipped on schedule

A customer service measure appropriate when customer orders vary in number of line items ordered.

Percentage of dollar volume shipped on schedule

A customer service measure appropriate when customer orders vary in value.

Setup cost

Costs such as scrap costs, calibration costs, and downtime costs associated with preparing the equipment for the next product being produced. 

Inventory turnover

A measure of inventory policy effectiveness.

Weeks of supply

A measure of inventory policy effectiveness.

Item cost

Includes price paid for the item plus other direct costs associated with the purchase.

Holding costs

Include the variable expenses incurred by the plant related to the volume of inventory held.

Capital costs

The higher of either the cost of the capital or the opportunity cost for the company.

Storage costs

Include the variable expenses for space, workers, and equipment related to the volume of inventory held.

Risk costs

Include obsolescence, damage or deterioration, theft, insurance, and taxes associated with the volume of inventory held.

Ordering costs

The fixed costs associated with either placing an order with a supplier or setup costs incurred for in-house production.

Shortage costs

Incurred when demand exceeds supply.

Back order

Delaying delivery to the customer until the item becomes available

Lost sale

Occurs when the customer is not willing to wait for delivery.

Continuous review system

Updates inventory balances after each inventory transaction

Periodic review system

Requires regular periodic reviews of the on-hand quantity to determine the size of the replenishment order.

Two-bin system

One bin with enough stock to satisfy demand during replenishment time is kept in the storeroom; the other bin is placed on the manufacturing floor.

Lead time

Time from order placement to order receipt.

Periodic counting

A physical inventory is taken periodically, usually annually.

Cycle counting

Prespecified items are counted daily.

What is the primary purpose of aggregate planning?

To reduce product prices

To develop production rates and resource requirements for the medium-term

To schedule individual jobs

To evaluate employee performance

To develop production rates and resource requirements for the medium-term

Which type of aggregate plan maintains a constant workforce and produces the same amount each period?

Chase plan

Hybrid plan

Level plan

Reactive plan

Level plan

Which two functional areas contribute directly to the aggregate planning process?

Marketing

Legal

Customer Service

Engineering

Marketing
Engineering

Which two options are considered demand-based options in aggregate planning?

Using inventories

Hiring and firing employees

Offering discounts to shift demand

Using overtime and undertime

Using inventories

Offering discounts to shift demand

Which type of aggregate plan adjusts the workforce or output capacity each period to match demand exactly?

Chase plan

Level plan

Hybrid plan

Static plan

Chase plan

Which two capacity-based options can be used in aggregate planning?

Subcontracting

Using back orders

Hiring and firing workers

Changing customer preferences

Subcontracting

Hiring and firing workers

What is the first step in developing an aggregate plan?

Identify the aggregate plan that matches company objectives

Evaluate the plan’s cost

Calculate workforce size

Conduct a feasibility study

Identify the aggregate plan that matches company objectives

Which of the following measures customer service levels in an aggregate plan?

Number of back orders

Number of employees hired

Machine utilization

Production cost per unit

Number of back orders

When evaluating the current situation for aggregate planning, which two factors should be considered?

Point of departure

Advertising expenditures

Magnitude of change

Total number of product lines

Point of departure

Magnitude of change

What type of plan is most suitable for make-to-order products with fluctuating demand?

Level plan

Chase plan

Hybrid plan

Fixed plan

Chase plan

Which aggregate plan strategy combines options like inventory, workforce adjustments, and subcontracting?

Chase plan

Level plan

Hybrid plan

Static plan

Hybrid plan

Which two performance factors are evaluated when testing an aggregate plan?

Stability of workforce

Marketing campaign success

Employee satisfaction scores

Total cost

Stability of workforce

Total cost

Which capacity-based option involves letting another company produce part of the workload?

Subcontracting

Back ordering

Overtime

Demand shifting

Subcontracting

Which type of aggregate plan option tries to smooth demand by offering incentives like off-season discounts?

Reactive option

Back ordering option

Proactive option

Inventory option

Proactive option

Which two factors should a company evaluate to determine the best options for an aggregate plan?

Duration of required changes

Employee turnover rates

Number of suppliers

Expected demand variation

Duration of required changes

Expected demand variation

What is the primary way aggregate planning supports the marketing plan?

By scheduling daily advertising campaigns

By ensuring production capacity meets forecasted sales demand

By setting product pricing and promotional budgets

By selecting new target markets

By ensuring production capacity meets forecasted sales demand

Which two ways do marketing and aggregate planning interact in the business planning process?

Aggregate planning ensures enough resources are available to meet marketing’s demand forecasts

Marketing adjusts pricing to match the production schedule

Marketing provides sales forecasts that drive aggregate production planning

Aggregate planning decides which advertising channels to use

Aggregate planning ensures enough resources are available to meet marketing’s demand forecasts

Marketing provides sales forecasts that drive aggregate production planning

Strategic business plan

A statement of long-range strategy and revenue, cost, and profit objectives.

Sales and operations planning

The process that brings together all the functional business plans (marketing, operations, engineering, and finance) into one integrated plan. 

Marketing plan

Identifies the markets to be served, desired levels of customer service, product competitive advantage, profit margins, and the market share needed to achieve the objectives of the strategic business plan.

Aggregate plan

Includes the budgeted levels of finished products, inventory, backlogs, workforce size, and aggregate production rate needed to support the marketing plan. 

Financial plan

Identifies the sources and uses of funds; projects cash flows, profits, return on investment; and provides budgets in support of the strategic business plan. 

Engineering plan

Identifies new products or modifications to existing products that are needed to support the marketing plan.

Master production schedule

The anticipated production schedule for the company expressed in specific configurations, quantities, and dates.

Demand-based options

A group of options that respond to demand fluctuations through the use of inventory or back orders, or by shifting the demand pattern.

Capacity-based options

A group of options that allow the firm to change its current operating capacity.

Finished goods inventory

Products available for shipment to the customer.

Back orders

Unfilled customer orders.

Shifting demand

A marketing strategy that attempts to shift demand from peak periods to nonpeak periods to smooth out the demand pattern.

Overtime

Work beyond normal established operation hours that usually requires a premium be paid to the workers.

Undertime

A condition occurring when there are more people on the payroll than are needed to produce the planned output.

Subcontracting

Sending production work outside to another manufacturer or service provider

Hiring and firing

Long-term option for increasing or decreasing capacity. 

Point of departure

The percentage of normal capacity the company is currently using.

Magnitude of the change

The relative size of the change needed.

Duration of the change

The expected length of time the different capacity level is needed.

Level aggregate plan

A planning approach that produces the same quantity each time period. Inventory and back orders are used to absorb demand fluctuations. A level aggregate plan maintains a constant workforce and produces the same amount of product in each time period of the plan.

Chase aggregate plan

produces exactly what is needed to satisfy demand during each period. The production rate changes in response to demand fluctuations. Whereas the level aggregate plan sets capacity to accommodate average demand, the chase aggregate plan sets labor and equipment capacity to satisfy demand each period. 

Hybrid aggregate plan

A planning approach that uses a combination of level and chase approaches while developing the aggregate plan. 

Enterprise resource planning (ERP)

Large, sophisticated software systems used for identifying and planning the enterprise-wide resources needed to coordinate all activities involved in producing and delivering products.

SCM software

Designed to improve decision making in the supply chain.

Closed-loop MRP

An MRP system that includes production planning, master production scheduling, and capacity requirements planning.

Manufacturing resource planning (MRP II)

A method for the effective planning and integration of all internal resources.

Material requirements planning (MRP)

A system that uses the MPS, inventory record data, and BOM to calculate material requirements.

Backward scheduling

Starts with the due date for an order and works backward to determine the start date for each activity.

Capacity requirements planning (CRP)

Determines the labor and machine resources needed to fill the open and planned orders generated by the MRP. CRP enables a company to evaluate both the feasibility of the MRP system and how well the company is using its critical work centers.

Bill of material (BOM)

Lists all the subassemblies, component parts, and raw materials that go into an end item and shows the usage quantity of each required.

Independent demand

The demand for an item is unrelated to the demand for other items.

Dependent demand

The demand for component parts is based on the number of end items being produced.

Time-phased

Expressing future demand, supply, and inventories by time period. 

Open shop orders

Released manufacturing orders.

Project

Endeavor with a specific objective, multiple activities, and defined precedence relationships, to be completed in a specified time period.

Concept

Identify the need for the project.

Feasibility analysis or study

Evaluate costs, benefits, and risks.

Planning

Decide who does what, how long it should take, and what you need to do it.