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14 Cards in this Set
- Front
- Back
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Define safety stock |
Buffer stock. Don't know what demand will look like so make sure there's enough. Ex: have 125 units of safety stock in stores when usually sell 100 |
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Define pipeline inventory
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Inventory in transit between Point A+B, which establish the pipeline. Doesn't have to be on a truck/train to count. Has enough inventory in pipeline to cover periodic demand and lead time. Example: 100 shovels sold/day * lead time of 7 days = 700 units in pipeline. |
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What happens if there's not enough pipeline inventory?
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SHORTAGE happens because if there's not enough pipeline inventory, can't cover the lead time it takes to go from Point A to Point B. Can't magic units out of thin air, still has to go through transit. |
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Define vertical integration |
Act of a company taking on additional supply chain responsibilities done by outside parties. |
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Two classes of vertical integration |
1. Forward integration 2. Backward integration |
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What is forward integration? |
Do downstream SC responsibilities. Downstream: get G+S to consumers efficiently and effectively. ---> (Want the D and is forward about it) Usually when a company opens up something they can become their own supplier for: more efficient. Bakery --> forward integrates makes own bread --> sandwich shop |
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What is backward integration? |
Do upstream SC responsibilities. Upstream: away from consumers. <------- (Want friend to bail you out and the D thinks you're going backwards) Usually when a company purchases a company that they can use as own supplier and become a supplier. Bakery --> backward integrates by buying a flour company --> uses own flour in baked goods + sell flour to other companies |
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Benefits of high inventory levels/purchases |
Inventory is necessary. Good things about carrying high inventory levels: - High levels of customer service: can immediately fulfill product demands - Quantity discounts: lower per unit costs - Fewer orders placed with lower ordering & transportation costs - Greater security if demand is uncertain |
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Benefits of low inventory levels/purchases |
- Less storage space required - Lower holding inventory costs - Lower chance of inventory obsolescence and shrinkage (stealing, etc) - Less materials handling requirements - More money for investing in other things |
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What is EOQ? |
Economic order quantity. It is the optimal lot size. Minimize total annual inventory cost (TC). Good for manufacturing, transportation, etc |
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What is EOQ's relationship to holding costs and ordering costs? |
EOQ = Optimal lot size.
Formula: Annual holding cost (AHC) = annual ordering cost (AOC). Solve for Q (lot size) to get optimal Q (EOQ). |
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What does it mean if AHC > AOC? Should you increase or decrease Q in each case? AHC:Q High:low |
Holding costs are too high. Decrease lot size (Q) -> reduce TC |
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What does it mean if AHC < AOC? Should you increase or decrease Q in each case? AOC:Q Low:high |
Holding costs are too low. Increase lot size (Q) -> reduce TC. |
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What should be considered in choosing a supplier? |
The criteria changes with the product/service. -Consumer needs: supplier has a part that will make product more desirable for consumers? -Cost, quality, speed, flexibility: supplier has similar goals to you and your customers' goals? -Technological capability: no one else can do? -Location: distance lead time, risk, costs -ITS: be able to share data securely -Ability to innovate: can invest in R&D and is interested in doing so -Capacity potential: can meet growing demand -2nd & 3rd tier suppliers: their suppliers comfortable w/, can we develop a relationship with them as well? -Reliability: deliver on promises, meet deadlines -Service: differentiates from others |
