Inventory Management
What the exam expects
Inventory questions test whether you can keep the right parts on the shelf without tying up cash. Expect terms such as par level, reorder point, safety stock, turns, obsolescence, cycle counting, and ABC classification. You should understand how lead time and demand variability set safety stock, and why a part that sells fast can still be a poor stocking choice if it has many variations.
Concepts to master
Inventory turnover equals cost of goods sold divided by average inventory value. A high turn is generally good, but too little stock causes lost sales. Reorder point equals average daily demand times lead time, plus safety stock. ABC analysis ranks parts by sales volume or profit so you focus counting and cash on the A items. Cycle counting replaces full physical inventories by counting a rotating subset. Obsolescence is inventory that will not sell in a reasonable period; it should be identified and liquidated.
Traps
Questions often confuse reorder point with par level. Par is the maximum you want on hand; reorder point triggers the order. Another trap is treating every slow mover as dead stock; some slow movers are necessary to complete a repair. Watch for questions that reward cutting inventory across the board, which hurts fill rate.
Rule of thumb
Stock what sells, special-order what does not. Worked example: a part sells 10 per week, lead time is one week, and safety stock is one week of sales. Reorder point is 10 times 1 plus 10, or 20 units; par might be 30.