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7 Cards in this Set
- Front
- Back
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Pressures for low inventory
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Opportunity cost - monetary investment
Carrying cost Storage and Handling costs, taxes, insurance, shrinkage costs |
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Cost of Capital
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Opportunity cost of investing in an asset (inventory) relative to the expected return on assets of similar risk.
This is the largest component of holding costs, as high as 15%. |
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Storage and Handling costs
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When a firm rents space on either a long or short term basis. A cost is incurred when a firm could use storage space productively in some other way.
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Taxes, insurance, shrinkage
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More taxes are paid if end-of-year inventories are high, and the cost of insuring the inventories increases, too. shrinkage takes three forms.
Pilferage - Theft Obsolescence Deterioration - Physcial spoilage |
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Pressures for high inventories
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Customer Service
Ordering cost Setup cost Labor and equipment utilization Transportation cost Payments to suppliers |
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Safety stock inventory
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Surplus inventory that protects against uncertainties in demand, lead time, and supply changes.
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Pipeline inventory
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Inventory moving from point to point in the materials flow system is called pipeline inventory. Formula is dL
d = average demand per period L = number of periods |
