Chapter 8 Questions 11

Evangelina Gonzalez
Student ID: 0922644

Chapter 8 Questions 11-20
8.11 Discuss what is meant by ABC analysis of inventory. What are
several measures that can determine ABC status?
Murphy,Jr., Paul R.; Wood, Donald Michael (2014-01-14).
Contemporary Logistics (11th Edition) (Page 142). Prentice Hall.
Kindle Edition.
ABC analysis of inventory: can be applied in several different

ways, recognizes that inventories are not equal value to a firm
and that, as a result, all inventories should not be managed in
the same way.
o The 80/20 rule: that 80 percent of a companys sales come
from 20 percent of its products(conversely, 20 percent of
sales come from 80 percent of products)
Measures that can determine ABC status

o Sales volume in dollars, sales volume in units, the fastestselling items, item profitability, and item importance
8.12 Define what is meant by dead inventory. What are several ways to
manage it?
Contemporary Logistics (11th Edition) (Page 142-143). Prentice
Hall. Kindle Edition.
Dead inventory: refers to a product for which there is no sales

during a 12 month period
Managing dead inventory

o Desperate measures to manager dead inventory
Just throwing the merchandise away
o Dead inventory increases carrying costs and takes up
space in warehousing facilities, and a structures process
should be in place for managing it
Make items to order as opposed to make items to
stock
o Market their dead stock more aggressively, perhaps
through a drastic price reduction or bunching it with more
attractive merchandise
o Sell dead inventory to companies that specialize in selling
such items, and Internet sites are available that specialize
in selling off dead stock
o Some dead items can be donated to charitable causes
Evangelina Gonzalez
Student ID: 0922644
8.13 In what ways can inventory turnover provide important insights
about an organizations competitiveness and efficiency?
A particular organization can compare its turnover figures to

those of direct competitor or other organizations with desirable
turnover ratios.
With respect to efficiency, low turnover indicates that a company
is taking longer to sell its inventory, perhaps because a product
obsolescence or pricing problems
High turnover may signal a low level of inventories, which can
increase the change or product stockouts
Provides an excellent examples of trade-offs involving multiple
organizational function such as finance, logistics, and marketing.
8.14 Discuss some of the managerial challenges that complementary

products present.
Kindle Edition.
So many complementary items exist that youll never be able to

display them in the same section
The amount of inventory to be carried. Purchasing a canister
vacuum cleaner, for example, means that a customer will
periodically need to buy replacement for the canister. As such,
the canister bags might be slow sellers, and some might argue
that the bags should be dropped in favor of faster-moving
products. Other, however, would point out the sale and display of
the these bags is necessary to support he sale of canister
vacuums
8.15 What are substitute items and how might they affect safety stock
policies?
Kindle Edition.
Substitute products: products that that can fill the same need
or want as another product
Evangelina Gonzalez
Student ID: 0922644
Affect safety stock policies

o With respect to stockout costs and the sizes of safety
stocks to be maintained. Thus, if a customer has little
hesitation in making substitution, there would appear to be
minimal penalties for a stockout. However, a point may be
reached where customers become sufficiently annoyed at
having to make substitution that they decided to take their
business elsewhere.
8.16 How might a hospitals decisions with respect to substitute

products differ from a supermarkets decisions with substitute
products?
Supermarkets decisions to use substitutions

o Many grocery chains target in-stock rates of 95 percent for
individual stores so that sufficient substitutes exist for a
customer to purchase a substitute item rather than go to a
competing store
Hospital decision to use substitutions (more complicated)
o What safety risks does a substitute product pose for
patients and hospital staff?
o Is the substitution product compatible with current
equipment?
o How will information about the substitute product be
communicated to hospital staff?
o How do a patients insurance requirements impact the
ability to use a substitute product?
8.17 How do the consequences of JIT go far beyond inventory

management?
Kindle Edition.
The JIT approach has a number of implications for logistical

efficiency, one of which is supplier must deliver high-quality
materials to the production line; because of JITs emphasis on low
(no) safety stock, defective materials result in a production line
shutdown. Improved product quality from suppliers can be
Evangelina Gonzalez
Student ID: 0922644
facilitated by looking at suppliers as partners, as opposed to

adversaries, in the production process
JIT emphasizes minimal inventory levels, and as a result
customers tend to place smaller more frequent orders. As such, it
is imperative that supplier order systems be capable of handling
an increased number of reorders in an error-free fashion. In
addition, because the transit time reliability tends to decrease
with distance, suppliers need to be located relatively close to
their customers
The combination of smaller, more frequent shipments and close
supplier location means that trucking is an important mode of
transportation in the JIT approach.
8.18 Why should organizations carefully consider potential trade-offs

before adopting a lean philosophy?
The lean philosophy was conceived and nurtured in an

environment low fuel prices, local or regional sourcing, fewer
human-made or natural disasters far different than todays
environment
Todays high fuel prices (by historical standards) cause
transportation companies to focus on lower costs through
moving larger freight volumes a practice that doesnt align very
well with leans emphasis on smaller shipments.
In a similar fashion, todays emphasis on global sourcing
translates into longer and more erratic transit times and longer
and more erratic trans times dont align very well with leans
emphasis on shipments that arrive exactly when needed
8.19 Discuss some challenges that service parts logistics creates for
logistics managers.
Kindle Edition.
It can be extremely difficult to forecast the demand for the

necessary parts.
o The difficulties in forecasting demand lead to challenges
with respect to which parts to carry, the appropriate
stocking levels for the parts that are carried, and higher
inventory levels, among others
Evangelina Gonzalez
Student ID: 0922644
The number of warehousing facilities that should be used in

service parts logistics
8.20 How does vendor-managed inventory differ from traditional

inventory management?

In traditional inventory management, the size and timing of

replenishment orders are the responsibility of the party using the
inventory, such as a distributor or a retailer.
Under vendor-managed inventory, by contrast, the seize and
timing of replenishments orders are the responsibility of the
manufacturer.

Chapter 8 Questions 11

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Evangelina Gonzalez

Student ID: 0922644

ABC analysis of inventory: can be applied in several different

Measures that can determine ABC status

Dead inventory: refers to a product for which there is no sales

Managing dead inventory

A particular organization can compare its turnover figures to

8.14 Discuss some of the managerial challenges that complementary

So many complementary items exist that youll never be able to

Affect safety stock policies

8.16 How might a hospitals decisions with respect to substitute

Supermarkets decisions to use substitutions

8.17 How do the consequences of JIT go far beyond inventory

The JIT approach has a number of implications for logistical

facilitated by looking at suppliers as partners, as opposed to

8.18 Why should organizations carefully consider potential trade-offs

The lean philosophy was conceived and nurtured in an

It can be extremely difficult to forecast the demand for the

The number of warehousing facilities that should be used in

8.20 How does vendor-managed inventory differ from traditional

Murphy,Jr., Paul R.; Wood, Donald Michael (2014-01-14).

In traditional inventory management, the size and timing of

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