5.5.1 Types of inventory

• What does inventory refer to in the context of business operations?

  Stock of goods and materials
• Raw materials are the basic inputs needed to start production
• Work-in-progress inventory consists of partly finished products undergoing manufacturing.
• What is the purpose of finished goods inventory?

  Completed products ready for sale
• The formula to calculate inventory is: Raw Materials + Work-in-Progress + Finished Goods
• Raw materials are examples of partially finished products undergoing manufacturing.

  False
• Match the inventory type with its description:

  Raw Materials ↔️ Basic inputs for production

  Work-in-Progress ↔️ Partially finished products

  Finished Goods ↔️ Completed products ready for sale
• What does MRO inventory stand for?

  Maintenance, repair, and operating
• Unlike raw materials, work-in-progress, and finished goods, MRO inventory is not included in the final product
• Spare parts for machinery are part of MRO inventory.
• What is the primary purpose of buffer inventory or safety stock?

  Mitigate supply or demand uncertainties
• Buffer inventory is used to protect against unexpected surges in demand
• Safety stock maintains a minimum inventory level to avoid stockouts.
• What is the formula for calculating safety stock?

  $Safety Stock =$$z \times \sqrt{Lead Time \times Demand Variance}$
• Work-in-Progress (WIP) refers to partially finished products still undergoing manufacturing
• What are finished goods ready for?

  Sale
• Inventory refers to the stock of goods and materials that a business holds to produce goods or services for sale
• What are raw materials needed for in production?

  Basic inputs
• Work-in-Progress (WIP) includes fully completed products.

  False
• Finished goods are completed products ready for sale
• What are examples of raw materials?

  Wood, metal, textiles
• Match the inventory type with its description:

  Raw Materials ↔️ Basic inputs needed to start production

  Work-in-Progress (WIP) ↔️ Partially finished products undergoing manufacturing

  Finished Goods ↔️ Completed products ready for sale
• Raw Materials, Work-in-Progress (WIP), and Finished Goods are the three primary types of inventory
• What is the purpose of raw materials in inventory?

  Basic inputs
• Work-in-Progress (WIP) includes partly finished products undergoing manufacturing
• What is the formula to calculate total inventory?

  $Inventory =$$Raw\ Materials +$$Work - \in - Progress +$$Finished\ Goods$
• MRO inventory becomes part of the final product.

  False
• MRO inventory is required to maintain, repair, and operate a business's infrastructure
• What is an example of a key component in MRO inventory?

  Spare parts for machinery
• Match the inventory type with its purpose:

  Raw Materials ↔️ Used in production

  Finished Goods ↔️ Ready for sale

  MRO ↔️ Maintenance, repair, and operations
• The total value of MRO inventory is the sum of spare parts and supplies.
• MRO_{parts}</latex> refers to the value of spare parts
• What is the formula to calculate total MRO inventory value?

  $MRO_{total} =$$MRO_{parts} +$$MRO_{supplies}$
• What is another term for buffer inventory?

  Safety stock
• Match the inventory type with its purpose:

  Raw Materials ↔️ To be used in production

  Work-in-Progress ↔️ Partially completed goods

  Finished Goods ↔️ Ready for sale

  MRO ↔️ Maintenance, repair, and operations
• MRO inventory is included in the final product.

  False
• The total value of MRO inventory is the sum of spare parts and supplies
• Buffer inventory protects against unexpected demand spikes or supply delays
• What does the lead time represent in the safety stock formula?

  Time to replenish inventory
• Match the concept with its purpose:

  Buffer Inventory ↔️ Protect against demand spikes

  Safety Stock ↔️ Maintain minimum inventory level