Chapter 13 - Inventory Control
Review and Discussion Questions
Distinguish between dependent and independent demand in a McDonald’s, in an integrated
manufacturer of personal copiers, and in a pharmaceutical supply house.
The key to the answer here is to consider what must be forecasted (independent demand), and, given
the forecast, what demands are thereby created for items to meet the forecasts (dependent demand).
In a McDonald’s, independent demand is the demand for various items offered for sale—Big Macs,
The demand for Egg McMuffins, for example, needs to be forecasted.
Given the forecast,
then, the demand for the number of eggs, cheese, Canadian bacon, muffins, and containers can then be
computed based on the amount needed for each Egg McMuffin.
The manufacturer of copiers is integrated, i.e., the parts, components, etc. are produced internally.
demand for the number of copiers is independent (must be forecasted).
Given the forecast, the Bill of
Materials is exploded to determine the amounts of raw materials, components, parts, etc. that are
needed (more on the BOM in chapter 16).
The pharmaceutical supply company is an extreme case where only end items are carried and nothing
is produced internally.
The bill of materials is the end item and, therefore, the independent demand
(forecasted from customers) is the same as the dependent demand.
One might attempt to consider that
when the demand for items occurs together, that this is similar to a bill of materials.
However, this is
not a bill of materials, but rather a causal relationship making it easier to forecast.
Distinguish between in-process inventory, safety stock inventory, and seasonal inventory.
In-process inventory consists of those items of materials components and partially completed units
that are currently in the production process.
Safety-stock inventory is set so that inventory is maintained to satisfy some maximum level of
It could be stated that safety stock is that level of inventory between the minimum expected
demand and the desired level of demand satisfaction.
Seasonal inventory is that inventory accumulated to meet some periodic increase in demand.
Discuss the nature of the costs that affect inventory size.
The optimum inventory size is one that minimizes the combined total of holding cost, ordering (or
setup) cost, shortage cost, and purchase cost.