Inventory Management Interview Questions & Answers

  1. Question 1. Do You Know When Should A Physical Inventory Be Taken?

    Answer :

    A inventory should be taken at least once a year. If items are perishable, seasonal or highly demanded a inventory should be taken more often.

  2. Question 2. Explain Can A Computer Help In Forecasting Future Demand?

    Answer :

    Yes, In the market today there are many computer software packages that can compute forecasted demand for goods held in inventory.

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  4. Question 3. Do You Know What Does Eoq Stand For?

    Answer :

    EOQ stands for Economic Order Quantity.

  5. Question 4. Tell Me Can Forecasting Help In Controlling Inventory?

    Answer :

    Yes, through the use of forecasts inventory levels can be set to meet the demands while keeping levels as low as possible.

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  7. Question 5. Tell Me What Is Forecasting?

    Answer :

    Forecasting is the process of estimating the future demand of a product.

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  9. Question 6. What Is Raw Material?

    Answer :

    Are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions.

  10. Question 7. Do You Know What Is A Order Point?

    Answer :

    A order point is a point in time at which a order is placed to replenish goods in inventory.

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  12. Question 8. Do You Know What Is Demand?

    Answer :

    Demand is the quantity that customers are willing to buy. Demand can be found through forecasting and is needed to find the EOQ level.

  13. Question 9. Tell Me What Is An Order Quantity?

    Answer :

    An order quantity is the amount of goods that an order requests be shipped to the store.

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  15. Question 10. Tell Me What Types Of Forecasting Can I Do?

    Answer :

    There are two types of forecasting qualitative and quantitative. Qualitative uses personal opinions to determine forecasts. Quantitative uses numerical data and statistical modeling to determine forecasts.

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  17. Question 11. Explain What Is Lead Time?

    Answer :

    Lead time is the period of time from which a order for goods is placed until it is received by the store. Lead time is an important consideration for determining when orders should be placed.

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  19. Question 12. Suppose I Get A Discount Will It Effect The Eoq Model?

    Answer :

    Yes, a discount will cause the basic EOQ model to fail. To use a discount in determine a EOQ you must use the EOQ model with quantity discounts.

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  21. Question 13. Tell Me What Is Cycle Count?

    Answer :

    A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specified day. Cycle counts contrast with traditional physical inventory in that a full physical inventory may stop operation at a facility while all items are counted at one time.

    It helps to see the difference between Actual stock and Book Stock. Book Stock is the stock available in the system.

  22. Question 14. Do You Know What Is The Eoq Formula?

    Answer :

    The EOQ formula is the square root of 2 times demand times order completion cost divided by carrying cost. The mathematical formula is square root of 2DS/C.

  23. Question 15. Tell Me What Do The Letters In The Eoq And Stocking Cost Formula Stand For?

    Answer :

    The letters in the formulas represent the quantity ordered(Q), the carrying cost of a unit(C), the demand for the units(D) and the cost of completing a order(S).

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  25. Question 16. Tell Us What Does Inventory Affect In A Store?

    Answer :

    Inventory levels and their values can affect the income of the store, the amount of taxes paid, and the total stocking cost.

  26. Question 17. Tell Me What Skills Make You Great At What You Do As An Inventory Specialist?

    Answer :

    I am a stickler for perfection and organization. In addition to this, I possess great leadership qualities which make it easy for me to direct personnel to do their job properly. Possessing knowledge of accounting procedures makes it easy for me to manage related bookkeeping and budget management tasks.

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  28. Question 18. Do You Know What Is Interference?

    Answer :

    Interference is a factor in forecasting demand. Interference is made up of all the factors that a forecaster has no control over. Factors that may be considered interference include natural disasters, unusual customer demands, or rare events in the business period.

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  30. Question 19. Do You Know As An Inventory Specialist, What Are Your Specific Duties?

    Answer :

    Working as an inventory specialist, I am required to develop and implement an overall inventory management plan which includes materials procurement, inventory stock levels, and facility needs and personnel management. Additionally, I am required to provide direction to staff members who handle inventory control and make sure any overstocking or shortages are handled in a time efficient manner.

  31. Question 20. Explain Me What Is Opening Stock And Closing Stock?

    Answer :

    At the beginning of a reporting period, or after a cycle count, the stock available in your inventory account is the Opening Stock. It is also called as Beginning Inventory.

    So, there’s an Opening Stock. Then, lots of transactions happens – Items are purchased and Sold. And finally Closing Stock is calculated.

    Closing stock is the amount of inventory that a business still has on hand at the end of a reporting period. This includes raw materials, work-in-process, and finished goods inventory. The amount of closing stock can be ascertained with a physical count of the inventory. It can also be determined by using a perpetual inventory system and cycle counting to continually adjust inventory records to arrive at ending balances.

    Closing Stock is an asset. In Inventory Account, it is under debit. In trading Account, it is under credit. Because, it is still not traded.

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  33. Question 21. Explain Me When Should Reorders Be Placed?

    Answer :

    Times for reordering goods vary dependent on the control system you use and its lead time. In fixed order quantities reorders should be placed when the safety stock is reached. In fixed period systems the reordering is done at set time periods. In just in time systems reordering is based on matching the demand with supply. For just in time a close watch on inventory levels is needed so that reorders are placed before goods are out of stock.

  34. Question 22. Explain Me What If There Is No Savings Or The Models Produce Even Results?

    Answer :

    If there is no savings a error in the calculations may have occurred or the model does not fit your case. For instances were the total stocking costs are even you may use either order quantity.

  35. Question 23. Explain Why Is Procurement Considered Such An Important Part Of Inventory Control?

    Answer :

    Procurement is the backbone of inventory management. Inventory specialists have to create and maintain liaison with vendors and suppliers, and customers to ensure that supplies are obtained in a timely manner and that there are no shortages when the need arises.

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  37. Question 24. Tell Me What Are The Important Considerations In Inventory Control?

    Answer :

    For inventory control to work at its best a store must consider the costs of acquisition, carrying, ordering, and stock-out. the store must also look at its reordering system, its budgeting for inventory, insurance and forecasted demand.

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  39. Question 25. Explain Me Is The Optimal Order Or Production Frequency Calculated On A Regular Basis As Part Of A Continuous Improvement Process?

    Answer :

    Once you’ve reduced inventories, you’ll have to put new processes in place to lower them even more over time. We use an analytical tool that highlights the biggest levers for continually reducing inventory.

    For example, instead of working to improve sales forecast accuracy from 70 percent to just 75 percent, establishing a team that’s focused on reducing lead times from Asian suppliers may have more impact.

  40. Question 26. Explain What Is Weighted Average Cost?

    Answer :

    A weighted inventory average determines the average cost of all inventory items based on the inventory items’ individual cost basis and the quantity of each item held in inventory.

    When a business purchases items for inventory, the business may pay different prices for the inventory items. This price differential can apply to both different inventory items and the same inventory items purchased at different times.

    The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale. This gives a weighted-average unit cost that is applied to the units in the ending inventory.

    Weighted Average Unit Cost = Total Cost of Inventory / Total Units in Inventory

    For Ex: 

    Lets say, we buy item A for 10 AED. We have 10 qty of Item A.

    Therefore, total cost of Item A is 10 x 10 = 100 AED.

    In that we sold 3 items. 7 qty left in stock. Total cost of those 7 items = 7 x 10 = 70 AED.

    After 3 months, item A cost is reduced to 8 AED. And then we bought 10 more for 8 AED.

    Therefore, total cost = 8 x 10 = 80 AED. 

    Now, we have 7 items bought for 10 AED and 10 items bought for 8 AED.

    Total 17 items.

    Therefore total cost = 70 AED + 80 AED = 150 AED.

    Now, when we calculate the weighted average cost of the 17 items which are to be sold = 150 AED/17 = 8.82 AED.

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  42. Question 27. Do You Know Who Decides Key Inventory-related Policy Such As Striking The Right Balance Between Customer Service And Cost-effective Product Inventory Levels?

    Answer :

    Many decisions about inventory levels are strategically important. So instead of relying solely on the supply organization to decide, executives need to have a major say in the fundamental issues that impact inventory management-everything from determining the right breadth and complexity of product offerings to optimal plant and distribution footprints.

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  44. Question 28. What Are Finished Goods?

    Answer :

    Inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.

  45. Question 29. Tell Us Do You Apply The Above Practices To All Parts Of Your Inventory (finished Goods, Raw Material, Works In Process And Spare Parts) And In All Organizational Entities?

    Answer :

    One of the most common mistakes made by supply organizations is looking at only a small subset of all inventory-the finished goods sitting in major warehouses-even though raw materials, works in process, spare parts and even goods in retail stores can make up 50 percent of the total. As a result, they miss potential savings. An organizational map of all inventories will help better prioritize ways to reduce inventories. And all the inventory techniques we’ve discussed apply.

  46. Question 30. Do You Know What Is Cogs (cost Of Goods Sold) Formula?

    Answer :

    For manufacturers, “cost of goods sold” (COGS) is the cost of buying raw materials and manufacturing finished products.

    For retailers, it’s the cost of obtaining or buying the products sold to customers.

    Opening Stock (Beginning inventory) + Purchases – Closing Stock (End Inventory) = COGS

    If the company is in a service industry, COGS is the cost of the service it offers.

    COGS can help companies work out how much they should charge for their products and services, and the level of sales they need to sustain in order to make a profit.

    The price paid for products is particularly crucial to retailers, as it is often their greatest area of expenditure. But all businesses can benefit from an analysis of COGS, as it can highlight ways of improving efficiency and cutting expenditure.

  47. Question 31. Tell Me Do You Have Regular Visibility Into Excess And Obsolete Stock, And Is It Linked To Targeted Action Plans To Sell Off Or Reduce This Inventory?

    Answer :

    Typically, excess and obsolete stock stems from ineffective sales forecasting, planning or using a business model that fails to factor in product complexity and life cycles correctly. Inventory leaders establish processes to determine why excesses are being created and then develop a plan of action to sell it off. In some instances, the fear of the write-off has led to a large buildup over time of obsolete inventory.

  48. Question 32. Tell Me Are You Able To Break Down Your Operating Inventory Into The Three Major Categories When Reporting Levels-safety, Replenishment And Excess Or Obsolete Stock?

    Answer :

    This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas. It helps determine the minimum safety stock needed to provide an insurance policy against supply chain problems either from manufacturing glitches or distribution uncertainties so that customers get what they ordered.

    It’s useful for pinpointing the amount of inventory required to replenish deliveries every two weeks. And it helps companies find ways to avoid a backlog of excess or obsolete inventory.

  49. Question 33. Explain Me What Should Be Recorded In A Physical Count Of Inventory?

    Answer :

    When conducting a physical inventory the classification, location and number in stock of a good should be recorded.

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  51. Question 34. Explain Me What Are The Types Of Reordering Systems That Can Be Used In Inventory Control?

    Answer :

    There are several types of reordering systems, in this module we discussed three. The fixed order quantity uses fixed quantities of goods ordered at various order points to replenish inventory.

    The fixed order period use fixed times of reorder with various order quantities to replenish inventory to preset levels. The final system, just in time uses a constant flow of goods to match the level of demand.

  52. Question 35. Do You Know How Is Gr/ir Account Related To Inventory?

    Answer :

    If you are involved with inventory, then you need the GR/IR account (Inventory Account) when the IR is posted.

    If you are not involved about inventory, then the system does not need the GR/IR account when the IR is posted, the system needs a G/L instead of the GR/IR account.

  53. Question 36. Tell Me How To Determine The Frequency For Ordering And Inventory Production If It’s Not Set Solely By Factories Or The Supply Organization?

    Answer :

    Ideally, there are two factors: companies should consider calculations that minimize the overall cost such as inventory and changeover costs. They also should base frequency on negotiations between the different parties involved and factor in upcoming events such as promotions and uncertainties like bad weather.

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  55. Question 37. Explain Me Do I Need To Recompute Stocking Costs For The Eoq Level?

    Answer :

    Yes, in order to compare stock costs when using the EOQ model you must compute the costs for both the original level and the EOQ level of order quantities.

  56. Question 38. Tell Us What Makes A Good Forecasting Model?

    Answer :

    A good forecast model will have reasonable costs. the accuracy of its forecasts will allow good decision making. The model will have ample data available for its use and a relevant time span. The model finally will have a low interference level.

  57. Question 39. How To Determine The Numbers To Use In The Eoq Formula?

    Answer :

    To determine which numbers to use you must look for the following items. The number of items per order is the quantity(Q). The number of items that can be sold is D. D may be the forecast demand for that particular good. The cost of placing the order is used for S. The final number to find is the carrying cost(C) which is the cost of the item to be held in inventory.

  58. Question 40. Explain How Can The Value Of Inventory Be Determined?

    Answer :

    The value can be found using four methods in inventory control. The first is the specific cost in which each item’s cost is added together for the inventory’s value. A second method is to use the weighted average of the costs for a period to determine value. A third method is first in, first out. In this method value is measured using the latest costs of goods while working towards the beginning of the period until all goods in inventory are valued. The final method is last in, first out. In this method the costs of gods at the beginning of the period are used to determine the inventory’s value much like FIFO.

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  60. Question 41. Tell Me What Is Shrinkage Calculation In Inventory?

    Answer :

    In financial accounting, the term inventory shrinkage is the loss of products between point of manufacture or purchase from supplier and point of sale. The term shrink relates to the difference in the amount of margin or profit a retailer can obtain. If the amount of shrink is large, then profits go down which results in increased costs to the consumer to meet the needs of the retailer.

    In retail terms, shrinkage refers to a company’s percent loss resulting from damage, product expiration and theft of unsold products. Retail shrinkage can happen anywhere along the production and sale chain, including at the factory, in transit or at the retail location. 

    You can calculate retail shrinkage by dividing the value of goods lost to shrinkage by the total value of goods that are supposed to be in the inventory.

    Shrinkage = 

    ( Total value of the goods that you are supposed to have in your inventory – Total value of the goods that is physically stocked in your inventory ) 

    / Total value of the goods that you are supposed to have in your inventory.

    i.e. Shrinkage = (Book stock – Actual Stock) / Book Stock

    = Total Value of goods lost / Total value of the goods that you are supposed to have in your inventory

  61. Question 42. Explain Me What Is Total Stocking Cost?

    Answer :

    Total stocking cost is the cost to the store of holding a good in its inventory. The stocking cost consists of the carrying cost times half the quantity in inventory and the order completion cost times demand divided by the quantity. In its mathematical form the cost is represented by TSC=(Q/2)C + (D/Q)S.

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  63. Question 43. What Is Work-in-process?

    Answer :

    Inventories are semi-manufactured products. They represent products that need more work before they become finished product for sale.

  64. Question 44. Do You Know What Is The Importance Of Eoq?

    Answer :

    The EOQ level is the point at which stocking costs are at their lowest point for a given item.