ENTREPRENEURIAL OPERATIONS
INVENTORY MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An organization uses a periodic review system to manage an item. A review is made every three weeks, lead time is one week, and safety stock is based on the MAD. The company wants to change to an order point system. Which of the following statements about safety stock in the order point system is true if the same level of customer service is to be maintained?
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it will increase
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it will remain the same
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it will decrease
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it is not needed
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Explanation:
Detailed explanation-1: -Periodic Inventory Explained With a periodic inventory system, a company physically counts inventory at the end of each period to determine what’s on hand and the cost of goods sold.
Detailed explanation-2: -For which inventory type is a stockout most critical? The types of inventory discussed in the text are raw materials, work-in-process, and finished goods. Answers may vary as to the most critical stockout.
Detailed explanation-3: -The optimal level depends on several factors, including inventory velocity, current and future demand, sales volume and supplier lead times. As a rule of thumb, the safety stock amount should be the amount of inventory used per day multiplied by the lead time in days.
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