Demand Planning & Fulfillment Final(Non-Cumalative)

What is inventory in a supply chain?

Inventory is the products a company buys, makes, moves, and sells—it is a key asset and the "lifeblood" of the supply chain.

Why is inventory considered important?

It allows companies to meet customer demand, support production, and benefit from economies of scale.

Why do companies hold inventory?

To compensate for timing differences between supply and demand.

What is the "water tank" analogy for inventory?

Inventory is like water in a tank, with supply filling it and demand draining it.

Why is inventory considered GOOD?

It ensures product availability, prevents delays, and supports efficient production.

Why is inventory considered BAD?

It ties up capital, requires storage, and risks obsolescence, damage, or spoilage.

What are major holding costs of inventory?

Storage, insurance, handling, losses, and cost of capital (typically ~15%).

What are the costs of NOT holding inventory?

Lost sales, lost customers, delays, rush shipping, and inefficiencies.

What is inventory quantity?

The number of units on hand for a specific SKU.

What is inventory value?

The total dollar value of inventory (cost × quantity).

What are inventory turns?

How many times inventory is sold and replaced in a year.

What is forward coverage?

How long current inventory will last based on future demand.

What are the three main categories of inventory?

Raw Materials, Work-in-Process (WIP), and Finished Goods.

What are raw materials?

Inputs used to produce finished goods.

What is Work-in-Process (WIP)?

Items currently being manufactured but not yet finished.

What are finished goods?

Completed products ready for sale or shipment.

What are the four drivers of inventory?

Uncertainty, Time, Economics, and Service.

How does uncertainty impact inventory?

Variability in supply and demand requires extra inventory (safety stock).

How does time impact inventory?

Longer lead times require more inventory to meet demand.

How does service level impact inventory?

Higher service levels require more inventory to avoid stockouts.

What is cycle stock?

Inventory used to meet expected demand between orders.

What is safety stock?

Extra inventory held to protect against uncertainty in demand or supply.

What is pipeline (in-transit) stock?

Inventory moving between locations in the supply chain.

What is prebuild stock?

Inventory built in advance to handle future capacity constraints.

What is merchandising stock?

Inventory maintained to support retail display or appearance.

What is the "inventory balancing act"?

Balancing customer service, cost, and inventory levels.

What happens with too much inventory?

High costs, wasted capital, and inefficiencies.

What happens with too little inventory?

Stockouts, lost sales, and poor customer service.

What is obsolete inventory?

Inventory that cannot be sold or used due to expiration, damage, or lack of demand.

What is the "rocks in the stream" concept?

Reducing inventory(water) exposes underlying supply chain problems(rocks).

What does "inventory is an output" mean?

Inventory results from decisions about buying, producing, and shipping.

What is distribution planning?

Determining the right product, quantity, location, and timing to meet demand efficiently.

What happens if distribution planning is poor?

Too little = stockouts; too much = excess inventory and higher costs.

What are two main planning approaches?

Time-phased (MRP, DRP)

Consumption-based (ROP, Kanban, Min-Max)

What is DRP?

A time-phased method to plan inventory movement between locations.

What are the basic DRP steps?

Review demand

Subtract from inventory

Add supply

Compare to target

Order more if needed

What is EOQ?

The optimal order quantity that minimizes total ordering and holding costs. EOQ=root2DK/h

What do the EOQ variables mean?

D = Demand

K = Order cost

h = Holding cost per unit

What is the key tradeoff in EOQ?

Ordering costs vs holding costs.

How can EOQ be reduced?

By lowering order/setup costs (enables smaller, frequent orders).

What is the reorder point (ROP)?

The inventory level at which a new order must be placed. ROP=D×L+SS

What does ROP depend on?

Demand rate, lead time, and safety stock.

What is Kanban?

A pull-based system where production is triggered by actual demand.

When is Kanban effective?

When demand is stable and processes are standardized.

What is production planning?

Deciding how much to produce and scheduling production efficiently.

What are key production objectives?

Safety, quality, service, cost, inventory optimization.

What is rough-cut capacity planning?

A high-level check of whether production capacity meets demand.

What happens if demand exceeds capacity?

Use overtime, inventory, hiring, subcontracting, or adjust demand.

What is an MPS?

A detailed schedule of what products will be produced and when.

Why is MPS important?

It drives production and material planning.

What is a firmed time period?

Period where changes are restricted to avoid disruption.

How is utilization calculated?

Planned load ÷ available capacity × 100.

What is the Theory of Constraints?

Focus on identifying and improving bottlenecks in production.

Key idea of TOC?

Bottlenecks determine system output and inventory.

What is MRP?

A system to determine what materials are needed, how much, and when.

Why is MRP a "push" system?

Materials are ordered based on forecasted future demand.

What is a BOM?

A list of all components required to make a product.

Difference between single-level and multi-level BOM? A:

Single: direct components

Multi: full product structure

What is independent demand?

External demand (e.g., finished goods).

What is dependent demand?

Demand derived from another product (components).

What is gross requirement?

Total demand before considering inventory.

What is net requirement?

Demand after subtracting available inventory.

What is planned order release?

Order timing for production or purchasing.

What is "Garbage In, Garbage Out" in MRP?

Poor data leads to poor planning results.

What are the 3 main supply chain goals?

Service, cost, and inventory.

Why are the supply chain goals difficult?

They conflict and require tradeoffs.

What is demand planning?

Forecasting customer demand to guide business decisions.

What are components of demand data?

Level, trend, seasonality, events, noise.

Why is forecast accuracy important?

It affects inventory, planning, and decision-making.

What is the supply chain planning flow?

Demand → Inventory → Distribution → Production → Materials.

What is Sales & Operations Planning (S&OP)?

A process aligning all functions to create one unified plan.

Why is S&OP important?

It balances demand, supply, and financial goals.