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11 Cards in this Set
- Front
- Back
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Functions of inventory
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1. to meet anticipated demand
2. to smooth production requirements (seasonal inv.) 3. to decouple operations (buffers needed for smooth operations) 4. to protect against stock-outs (delivery delays or unexpected demand surge) 5. to take advantage of order cycles (set-up vs. holding costs) 6. to help hedge against price increases (buying price) 7. to permit operations (due to lead times) 8. to take advantage of quantity discounts from suppliers |
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Objective of inventory control
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to achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
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Effective inventory management
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- a system to keep track of inventory
- a reliable forecast of demand - knowledge of lead times - reasonable estimates of >> holding costs >> ordering costs >> shortage costs - a classification system |
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Lead time
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time interval between ordering and receiving the order
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Holding (carrying) costs
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costs to carry an item in inventory for a length of time, usually a year
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Ordering costs
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costs of ordering and receiving inventory
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Shortage costs
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costs when demand exceeds supply
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ABC classification system
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classifying inventory according to importance and allocating control efforts accordingly
A - very important B - moderate importance C - least important |
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Cycle counting
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- a physical count of items in inventory
- to reduce discrepancies between the amounts indicated by inventory records and the actual quantities of inventory on hand - how much accuracy is needed? - when should cycle counting be performed? - who should do it? |
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Assumptions of EOQ model
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- only one product is involved
- annual demand requirements known - demand is even throughout the year - lead time does not vary - each order is received in a single delivery - there are no quantity discounts |
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Types of Inventory
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- raw materials and purchased parts
- partially completed goods, called work-in-process (WIP) - finished goods (mfg firms) or merchandise (retail stores) - tools and supplies - maintenance and repairs (MRO) - goods-in-transit to warehouses, distributors, or customers (pipeline inventory) |
