ADL 138 Inventory Management V1

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ADL 138 Inventory Management V1

Assignment A
1. Do organizations need to carry inventory? Why?
2. What is the relationship between inventory investment and profitability of an
organization?
3. Identify at least four alternatives that organizations use as a basis for
fixing the order quantity?
4. What is the basis for service level and safety stock?
5. Why organizations adopt a selective system of inventory control?
Assignment B
1. Consider the inventory planning problem. Write down the relevant total cost
equation in each of the following –
a. The organization can fetch discount on price if large quantities are ordered.

b. There is a benefit in transportation cost if ordered in full truckloads.
2. When is it appropriate to use the ABC classification and FSN classification
schemes
3. Discuss and write two dimensional scheme of classification using ABC and VED
Q4. Case study: Please read the case study given below and answer questions
given at the end.
CASE-STUDY
IMPORTANCE OF INVENTORY MANAGEMENT
Number of inventory turns of various sectors of Industries in India is as
follows
Sector of Industry FY 2002 FY2001 FY2000 FY199
Automobile: LCV/HCV 7.19 6.36 7.43 6.19
Automobile: Passenger Car 10.11 8.88 7.98 7.62
Cement 7.68 7.47 7.69 8.04
Computer hardware 9.13 8.89 8.30 8.31
Engineering: General 4.68 5.15 3.51 1.65
Engineering: Heavy 2.50 2.35 2.88 3.46
Pharmaceutical 5.55 5.23 5.38 5.32
Petrochemicals 8.56 3.44 4.93 5.07
Steel 4.99 4.58 4.27 2.81
Av No of Turns 6.71 5.82 5.82 5.39
Av Inventory ( Days) 54 63 63 68

Inventory Management is an important aspect for organizations for a variety of
reasons. The foremost reason is the continued dominance of material cost in the
total cost of a manufactured product. During 1998-99, brakes India spent about
Rs 166 crores in purchase of materials, which accounted nearly 55 percent of
goods sold during the year. Hence, proper material planning and control will
offer good scope for cost reduction.
Secondly, investment in inventory continues to a significant portion of current
assets in our country. As shown in the table above, on an average, Indian
organizations carry in excess of 50 days of inventory. This is very high
considering the international standards, which is in the range of 15-20 days of
inventory.
On the other hand, some of the best managed companies in our country report high
inventory turn. For example, Lucas TVS, Chennai –based auto-electrical
manufacturer, reported about 30 inventory turns indicating merely12 days of
inventory. The higher the inventory is, higher the total investment (due to
increase in the current assets) and lower the retained earnings ( due to higher
interest charges on the working capital ) will be . Therefore, inventory
investment has a direct multiplier effect on ROI. The higher the investment in
inventory, the lower the ROI will be.
Go through the case and answer the questions given below-
Q1. What are the practical reasons which attribute to high levels of inventory?
Q2 Give certain suggestions or specific techniques to overcome the problem.
Assignment C
1. Types of inventories are-
a) Cyclic stock
b) Pipeline inventory
c) Safety stock
d) All of these
2. Cost of ordering is-
a) Stationary cost for Purchase order
b) Man hours to issue PO
c) Expenses on account of tendering action
d) All of these
3. Carrying cost is-
a) Transport cost
b) Space occupied cost
c) Interest cost on stock value
d) Both a. & b.
4. Cost of stock out is –
a) Loss of production when material is not there
b) Stock of finished goods is zero
c) Pile up on shop floor
5. Inventory management is for-
a) Creating stock out
b) Balancing various types of costs
c) Making losses
d) All the above
6. A class item is-
a) Having highest stock
b) Having highest value
c) Having lowest value
d) None of the above
7. C class items constitute-
a) 70% of the items in number
b) 10% of the items in number
c) 30% of the items in number
d) None
8. VED stands for-
a) Variable, Exact & Double
b) Vital, Essential & Desirable
c) Value, Efficiency & Direct
d) None of the above
9. EOQ stands for-
a) Equal basis of quantity
b) Economic order quantity
c) Economy on quotient
d) None of these
10. XYZ is a category of materials based on-
a) Urgency
b) Frequency
c) Weight
d) All of these
11. Reorder level is the point where-
a) Stock is nil
b) Safety stock level
c) Service level
d) None
12. Expenses on preservation are-
a) Carrying cost
b) Ordering cost
c) Obsolescence cost
d) None
13. Ordering cost will be in the case of-
a) Imported material
b) Indigenous material
c) Local purchase
d) None
14. Pipe line inventory is-
a) Stock in finished god own
b) Raw material on shop floor
c) Scrap near the machine
d) None
15. Seasonal inventories varies-
a) On daily basis
b) Monthly basis
c) Season basis
d) None
16. Average inventories in days is-
a) Stock piled up in stores
b) Finished one
c) Both a& b
d) None
17. Inventory term stands for-
a) Idle resource for future use
b) Active resource
c) Non value resource
18. High inventory levels have effect on profitability of a firm-
a) Positive
b) Negative
c) No effect
d) None
19. Firms are trying to keep inventory lvels-
a) Very high
b) Moderate
c) Very low
d) None
20. Inventory management helps in-
a) Reduce wastages
b) Reduce obsolescence
c) Improve quality
d) None
]
21. Operating inventories are-
a )Min to run production
b) For final dispatch
c) Both of these
d) None
22. Timing of demand stands for-
a) Product is seasonally required
b) Product is always required
c) Both a& b
d) None
23. Good inventory management is-
a) Replenish the item the moment it is consumed
b) Replenish after one day
c) Both a& b
d) None
24. Insurance charge, when material is in transit is-
a) Carrying cost
b) Ordering cost
c) Obsolescence cost
d) None
25. If level of inventory is high-
a) Ordering cost will be minimum
b) Carrying cost will be Highest
c) Both b & c
d) None
26. Price discount for large order will-
a) Decrease ordering cost
b) Increase carrying cost
c) Both b & c
d) None
27. Instantaneous replenishment will create-
a) Zero carrying cost
b) Very high carrying cost
d) Moderate carrying cost
d) None
28. Continuous review of inventory is-
a) Two bin system
b) One bin system
c) Both a& b
d)None
29. Periodic review system is-
a) Daily basis
b) After a certain period
c)after one year
d) None
30. EOQ balances-
Inventory carrying cost
b) Inventory ordering cost
c) a & b
d)Obsolescence cost
31. ABC stands for-
a) Always better control
b) 80% value & 20% number
c) Both a & b
d)None
32. ABC & VED combination gives –
a) 9 categories for control
b) 6 categories
c) 3 categories
d) None of these
33. Safety stock is-
a)Saves the production
b) Ensures the continuity of production
c) both a & b
d) None
34. Lead time is –
a) Time taken for material receipt
b) Time between placement of order & receiving the material
c) Both a & b
d) None
35. Spares parts inventory is-
a) Cyclic in nature
b) Fixed
c) Continuous
d) None
36. Non moving items are-
a) Not in use for a long
b) Not shifted from one place
c) Both a & b
d) None
37. Slow moving items are-
a) Moving with a speed of 40 Km /Hr
b) Infrequent use
c) Regular in use
d) None
38. A type of items are-
a) Very high in value and less in number
b) Very important
c) Least important
d) None
39. JIT stands for-
a)Joint inspection & testing
b) Just in time
c) Both a & b
d) None
40. Standardization of items helps in controlling –
a) Variety of components
b) Number of components
c) Both a & b
d) None

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