SCHM 2301 UPDATED TEST PAPER QUESTIONS AND
ANSWERS MARKED A+
✔✔Continuous Review Model - ✔✔a computer system tracks sales and keeps a
running tally of quantities on hand. This model is more accurate, but more costly.
✔✔Ordering costs - ✔✔associated with placing orders and receiving supply
✔✔Holding costs - ✔✔associated with storing and assuming risk of having inventory
✔✔Total Acquisition Costs - ✔✔sum of all relevant annual inventory costs
✔✔Economic Order Quantity (EOQ) - ✔✔minimizes total acquisition costs; point at
which holding and orders costs are equal
✔✔Assumptions underlying EOQ: - ✔✔• No quantity discounts
• No lot size restrictions
• No partial deliveries
• No variability
• No product interactions
✔✔Reorder Point - ✔✔minimum level of on-hand inventory that triggers a replenishment
✔✔Service Level Policy - ✔✔determining the acceptable stock out risk level
✔✔Order Interval - ✔✔fixed time between inventory review, on-hand level is unknown
during this uncertainty period. Need to determine the order quantity, Q.
✔✔Square Root Rule - ✔✔estimation of impact of changing the number of locations on
inventory
✔✔ABC analysis - ✔✔ranking inventory by importance
✔✔Pareto's Law - ✔✔small percentage of items have a large impact on sales, profit or
costs
✔✔Managing Cycle Stock - ✔✔reducing lot sizes
✔✔Managing Safety Stock - ✔✔using ABC analysis and reducing lead time
✔✔Managing Locations - ✔✔balance inventory, lead time and service levels
✔✔Implementing Inventory Models - ✔✔matching management system to specific items
, ✔✔Bullwhip Effect - ✔✔variation increases upstream in the supply chain (from
consumer to manufacturers)
✔✔Vendor-managed Inventory (VMI) - ✔✔the vendor is responsible for managing
inventory for the customer
✔✔Collaborative planning, forecasting and replenishment (CPFR) - ✔✔supply chain
partners sharing information
✔✔ Supply Management - ✔✔identification, acquisition and management of inputs and
supplier relationships. Also called purchasing or procurement.
✔✔Typically the largest portion of COGS - ✔✔Cost of Purchase = 80% of sales
Cost of Marketing (sales) = 10% of sales
Cost of Transportation = 10% of sales
✔✔A firm's strategic objectives are better met when effective supply management: -
✔✔• Ensures timely availability of resources
• Reduces total cost (not just purchase price)
• Enhances quality
• Enables access to technology and innovations
• Fosters social responsibility
✔✔Supply Risk - ✔✔probability of an unplanned event that negatively affects a firm
✔✔Examples of Supply Risk - ✔✔• Delays and disruptions
• Thefts of intellectual property
• Price increases
• Product safety problems
✔✔Total Cost of Ownership (TCO): sum of - ✔✔• Before - Time spent and costs of
searching for, visiting, evaluating, and certifying suppliers.
• During - Purchase price and costs of ordering, transporting, expediting, receiving,
inspecting, and following up.
• After - Costs of inventory, supply risk, production downtime, defects in finished goods,
warranties, safety recalls, replacements, repairs, lost sales, liability, and damaged
reputation.
✔✔cost and price are not the same thing. - ✔✔The true cost of acquiring and using a
product is often far greater than the purchase price. Sometimes called the life cycle
cost.
✔✔Results from Sustainability - ✔✔Improves financial performance
Increases quality
Instills customer loyalty
ANSWERS MARKED A+
✔✔Continuous Review Model - ✔✔a computer system tracks sales and keeps a
running tally of quantities on hand. This model is more accurate, but more costly.
✔✔Ordering costs - ✔✔associated with placing orders and receiving supply
✔✔Holding costs - ✔✔associated with storing and assuming risk of having inventory
✔✔Total Acquisition Costs - ✔✔sum of all relevant annual inventory costs
✔✔Economic Order Quantity (EOQ) - ✔✔minimizes total acquisition costs; point at
which holding and orders costs are equal
✔✔Assumptions underlying EOQ: - ✔✔• No quantity discounts
• No lot size restrictions
• No partial deliveries
• No variability
• No product interactions
✔✔Reorder Point - ✔✔minimum level of on-hand inventory that triggers a replenishment
✔✔Service Level Policy - ✔✔determining the acceptable stock out risk level
✔✔Order Interval - ✔✔fixed time between inventory review, on-hand level is unknown
during this uncertainty period. Need to determine the order quantity, Q.
✔✔Square Root Rule - ✔✔estimation of impact of changing the number of locations on
inventory
✔✔ABC analysis - ✔✔ranking inventory by importance
✔✔Pareto's Law - ✔✔small percentage of items have a large impact on sales, profit or
costs
✔✔Managing Cycle Stock - ✔✔reducing lot sizes
✔✔Managing Safety Stock - ✔✔using ABC analysis and reducing lead time
✔✔Managing Locations - ✔✔balance inventory, lead time and service levels
✔✔Implementing Inventory Models - ✔✔matching management system to specific items
, ✔✔Bullwhip Effect - ✔✔variation increases upstream in the supply chain (from
consumer to manufacturers)
✔✔Vendor-managed Inventory (VMI) - ✔✔the vendor is responsible for managing
inventory for the customer
✔✔Collaborative planning, forecasting and replenishment (CPFR) - ✔✔supply chain
partners sharing information
✔✔ Supply Management - ✔✔identification, acquisition and management of inputs and
supplier relationships. Also called purchasing or procurement.
✔✔Typically the largest portion of COGS - ✔✔Cost of Purchase = 80% of sales
Cost of Marketing (sales) = 10% of sales
Cost of Transportation = 10% of sales
✔✔A firm's strategic objectives are better met when effective supply management: -
✔✔• Ensures timely availability of resources
• Reduces total cost (not just purchase price)
• Enhances quality
• Enables access to technology and innovations
• Fosters social responsibility
✔✔Supply Risk - ✔✔probability of an unplanned event that negatively affects a firm
✔✔Examples of Supply Risk - ✔✔• Delays and disruptions
• Thefts of intellectual property
• Price increases
• Product safety problems
✔✔Total Cost of Ownership (TCO): sum of - ✔✔• Before - Time spent and costs of
searching for, visiting, evaluating, and certifying suppliers.
• During - Purchase price and costs of ordering, transporting, expediting, receiving,
inspecting, and following up.
• After - Costs of inventory, supply risk, production downtime, defects in finished goods,
warranties, safety recalls, replacements, repairs, lost sales, liability, and damaged
reputation.
✔✔cost and price are not the same thing. - ✔✔The true cost of acquiring and using a
product is often far greater than the purchase price. Sometimes called the life cycle
cost.
✔✔Results from Sustainability - ✔✔Improves financial performance
Increases quality
Instills customer loyalty
