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27 Cards in this Set
- Front
- Back
Types of Inventory (5)
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– Raw materials
– Work-In-Process (WIP) – Finished Goods – Maintenance, Repair and Operating Suppliers (MRO) – Transit Inventory |
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Stockout
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no product available when a customer asks for it
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Costs Related to Inventory (3)
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• Ordering Costs (preparation, transmittal, receiving)
• Product Price • Stockout Costs |
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Why Carry Inventory?
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– Balance Supply and Demand
– Provide a buffer against uncertainty in demand – Geographic specialization |
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Buffer
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inventory of goods held as a reserve against short-term shortages or to dampen fluctuations in price
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Key Inventory Metrics
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• Order Fill Rate
• Stockouts • Inventory Turnover |
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Item Fill Rate =
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= Qty. Shipped / Qty. Ordered
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order fill rate
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a measure of the percentage of orders shipped completely.
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Inventory turnover
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the number of times a company’s inventory cycles per year
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Disadvantages with Inventory Turns
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• Possible lowered sales volume due to out of stocks
• Increased cost of goods sold due to inability to purchase in quantity • Increased purchasing, ordering, and receiving time and effort |
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Independent Demand
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An item we cannot control or tie directly do another item’s demand.
cannot be controlled by the factory ex. pharmaceutical drugs |
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Dependent Demand
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An item whose demand is tied to another item’s demand or controlled directly. (what needs to be purchased to meet independent demand)
controlled by the factory ex. pill bottles and caps |
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Independent Demand Inventory Review
Systems (3) |
• Continuous Review Systems
• Periodic Review Systems • One-time (News Stand) Situations |
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Continuous Review Systems
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Always evaluating inventory
Ex. Supermarket |
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Periodic Review Systems
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look at inventory maybe once a month or once a quarter.
Ex. Cars |
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One-time (News Stand) Situations
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How many I have and how many I need before I run out.
rare Ex. newspapers |
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Average Inventory =
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= inventory at start of period + inventory at end of period / 2
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Orders per year =
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= # days per year / # days between orders
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Inventory turnover =
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= (orders per year)(order quantity) / average inventory
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Reorder Point (RoP)
Definition & Equation |
Critical volume to reorder product.
When the amounts available and on order equal RoP, place an order. = (Avg. Daily Demand)(Lead Time) + Buffer |
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Demand Uncertainty
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Don't know what the markets going
to do. |
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Economic Order Quantity
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determines the level of inventory to order to minimize costs
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Two costs to consider when ordering:
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– Inventory carrying costs (holding costs)
– Ordering cost |
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EOQ Assumptions (4)
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• Consistent product price and transportation price (no discounts)
• No product interactions • Possible to order in EOQ lot size • Unlimited capital |
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Price Break EOQs (6 Steps)
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1. Identify price breaks
2. Calculate EOQs at each price break. 3. Determine order quantity for each price break 4. Choose: EOQ, if EOQ > min q min q, if EOQ<min q 5. Calculate total costs for each price break 6. Pick Q with lowest total cost |
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ABC Classification System
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identify inventory items based on percentage of total dollar value, where “A” items are roughly top 15%, “B” items as next 35%, and the lower 65% are the “C” items
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Items kept in inventory are not of equal importance in terms of: (4)
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– dollars invested
– profit potential – sales or usage volume – stock-out penalties |