Management Theory

Review Questions pg. 619 #1-7

1) Independent demand consists of demands for various items that are unrelated to each other. An example would be workstations producing many parts all of which are unrelated by meet some external demand requirement. Dependent demand differs in that any one item is the direct result of the need for another item that is usually higher-up on another level. In auto manufacturing industries, machines run on straight-forward computation of what materials to use to assemble cars. McDonalds would run under independent demand since their stock is based on order and consumer demand, personal copiers are dependent since specified materials are used to make the end-product and pharmaceutical houses are independent, based on consumer demand.

2) In-process inventory is the amount of inventory in the process; the goal is to reduce this in order to reduce lead time. Safety stock inventory is the extra amount carried in addition to the expected demand and seasonal inventory is based on quarterly results of what amount was needed during peak seasons: example=Halloween and Christmas in the United States.

3) In general, Holding costs(costs associated to storage, handling, insurance, pilferage, breakage, obsolescence, depreciation, taxes and opportunity coasts of capital), Setup costs (specific equipment arranged, filling paper work and moving certain materials around--JIT goals), Ordering Costs (managerial and clerical costs to prepare purchase and production order) and storage costs (when stock of an item is depleted, an order for that item must wait until the stock is replenished or be canceled). They all affect the size of inventory.

4) The fixed-order quantity model (Q-model) relates to EOQ and is event triggered. It indicates an order when the event of reaching a specified reorder level occurs and this depends often the demand for the items considered. It places an order when the remaining inventory drops to a predetermined order point and must continually be monitored. It favors more expensive items because of average inventory is lower and is more appropriate for important items such as critical repair. It requires more time because every addition or withdrawal is logged. Fixed-time periods (P-Model) revolves around time limited placing orders at the end of a predetermined period and takes place only at review period. It has larger average