Scm 303 Exam 2

Front 1

Types of Inventory (5)

Back 1

– Raw materials
– Work-In-Process (WIP)

– Finished Goods

– Maintenance, Repair and Operating Suppliers (MRO)

– Transit Inventory

Front 2

Stockout

Back 2

no product available when a customer asks for it

Front 3

Costs Related to Inventory (3)

Back 3

• Ordering Costs (preparation, transmittal, receiving)
• Product Price
• Stockout Costs

Front 4

Why Carry Inventory?

Back 4

– Balance Supply and Demand

– Provide a buffer against uncertainty in demand

– Geographic specialization

Front 5

Buffer

Back 5

inventory of goods held as a reserve against short-term shortages or to dampen fluctuations in price

Front 6

Key Inventory Metrics

Back 6

• Order Fill Rate

• Stockouts

• Inventory Turnover

Front 7

Item Fill Rate =

Back 7

= Qty. Shipped / Qty. Ordered

Front 8

order fill rate

Back 8

a measure of the percentage of orders shipped completely.

Front 9

Inventory turnover

Back 9

the number of times a company’s inventory cycles per year

Front 10

Disadvantages with Inventory Turns

Back 10

• 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

Front 11

Independent Demand

Back 11

An item we cannot control or tie directly do another item’s demand.

cannot be controlled by the factory

ex. pharmaceutical drugs

Front 12

Dependent Demand

Back 12

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

Front 13

Independent Demand Inventory Review
Systems (3)

Back 13

• Continuous Review Systems
• Periodic Review Systems
• One-time (News Stand) Situations

Front 14

Continuous Review Systems

Back 14

Always evaluating inventory
Ex. Supermarket

Front 15

Periodic Review Systems

Back 15

look at inventory maybe once a month or once a quarter.

Ex. Cars

Front 16

One-time (News Stand) Situations

Back 16

How many I have and how many I need before I run out.

rare

Ex. newspapers

Front 17

Average Inventory =

Back 17

= inventory at start of period + inventory at end of period / 2

Front 18

Orders per year =

Back 18

= # days per year / # days between orders

Front 19

Inventory turnover =

Back 19

= (orders per year)(order quantity) / average inventory

Front 20

Reorder Point (RoP)

Definition & Equation

Back 20

Critical volume to reorder product.

When the amounts available and on order equal RoP, place an order.

= (Avg. Daily Demand)(Lead Time) + Buffer

Front 21

Demand Uncertainty

Back 21

Don't know what the markets going
to do.

Front 22

Economic Order Quantity

Back 22

determines the level of inventory to order to minimize costs

Front 23

Two costs to consider when ordering:

Back 23

– Inventory carrying costs (holding costs)
– Ordering cost

Front 24

EOQ Assumptions (4)

Back 24

• Consistent product price and transportation price (no discounts)

• No product interactions

• Possible to order in EOQ lot size

• Unlimited capital

Front 25

Price Break EOQs (6 Steps)

Back 25

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

Front 26

ABC Classification System

Back 26

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

Front 27

Items kept in inventory are not of equal importance in terms of: (4)

Back 27

– dollars invested
– profit potential
– sales or usage volume
– stock-out penalties