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48 Cards in this Set
- Front
- Back
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What are two inventory classification systems
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ABC analysis and critical value analysis
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ABC analysis
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ranking is based on some measure such as sales, profits, or usage
procedure: rank the product from highest to lowest calculate percentage of the measure calculate percentage of items categorize according to cutoffs |
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Critical inventory analysis
4 priorities |
1 top priority - no stock outs - critical item
2 high priority - essential but limited stock outs permitted 3 medium priority - necessary but occasional stockouts permitted 4 desirable but stockouts allowes |
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What are the two basic types of inventory control systems
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fixed order quantity
fixed order period |
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What is the purposed of inventory control systems
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limit amount of inventory
no excess or too little |
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when is it best to use each type of inventory control system
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fixed order quantity - reduce risk, use with A items
fixed order period - lower value items, more risk |
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what are characteristics of the fixed order quantity model
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EOQ
higher processing costs |
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What is the 80 - 20 rule
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20% of items = 80% of sales
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Inventory costs
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Carrying/holding costs
order/set-up costs stockout costs |
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carrying/holding costs
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handling
physical storage insurance tax depreciation obsolescence interest opportunity costs |
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what is the largest cost associated with inventory
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opportunity costs
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how are inventory costs expressed
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as a percentage
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what is in-transit inventory
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interest/opportunity costs
insurance (possibly) |
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what is the simple price break model?
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Uses TAC - total annual costs
Find lowest price and calculate EOQ check feasibility calculate all price breaks above |
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What are the basic assumptions of the EOQ model?
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continuous constant rate of demand
known lead time no stockouts constant price no in transit no interaction between inventory infinite horizon no limit on capital inventory holding cost based on average inventory no private carrier |
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What are reasons for holding physical supply inventory
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purchase economics
transportation economics prevent production shutdown speculative purchases seasonal supply |
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what are reasons for holding physical distribution inventory
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transportation economics
production economics seasonal demand customer service |
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Inventory and marketing
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high customer service levels mean high inventory levels
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inventory and manufacturing/production
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long production runs
lowest procurement costs seasonal inventory means high inventory levels |
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inventory and finance
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increase turnover
reduce current assets achieve high capital utilization means low inventory levels |
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TAC
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Total annual cost
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R
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annual demand
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V
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value of unit
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Q
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economic order quantity
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A
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cost per order
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W
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carrying(holding) cost percentage
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RV =
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annual costs of goods
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R/QA =
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annual ordering costs
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1/2Q =
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average number of units in inventory
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1/2QVW =
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annual holding/carrying costs
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What happens when the EOQ quantity is increased
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carrying costs goes up and total cost goes up
ordering costs go down |
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What is the formula for the economic order quantity?
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(2ar/vw)^1/2
ordering costs/carrying costs |
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What is the reorder point
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RP = dL
d = average daily demand L = lead time |
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what is just in time inventory management
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inventory viewed as a waste
replenish time kept to a minimum |
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JIT works best with
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repetitive products
flexible workers cooperative vendors |
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JIT problems
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better equipment needed
better transportation needed more efficient channel management more flexible factory ordering costs higher other channels may need to hold more inventory |
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AMERICAN system
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more inventory is safer
formula best trade off between costs multiple sources of vendors want more lead time |
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what are the functional types of inventory we find in a logistical system
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process - goods in process, goods in transit
cycle (lot size) safety (buffer) seasonal |
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how is inventory valued?
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FIFO first in first out
LIFO last in first out average costs |
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what is the customer service trade off
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higher the customer service the higher the inventory investment
exponential |
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what is the objective of inventory management and control
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are your customers currently satisfied at the lowest cost
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what is the quick response (QR)
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shorter, compressed time horizons
real-time information available by SKUs TQM textiles |
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ECR
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efficient consumer response
grocery accurate information between manufacturing and check out counter |
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CPFR
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collaborative planning and forecasting requirements
supply chain members develop a common forecast for SKUs to reduce uncertainty |
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one word: logistics
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plastics defined -- now its logistics
exploding global trade spread of JIT e-tailing revolution growing demand for logistics |
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kmart's inventory system it's key flaw
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laggard in supply chain management
cant control inventory |
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driving force: BIG MONEY TO BE MADE IN LOGISTICS
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outsourcing allows to focus on core competencies
cutting inventory long term contracts |
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is JIT dead?
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commodity prices are going to boom
stock up on inventory |
