Book 21-3 Flashcards

1
Q

Particularly important in manufacturing because delays caused by lack of materials or parts can be costly.

  • Sales can be maximized by completing production in a timely manner and by stocking an appropriate assortment of merchandise for distribution to wholesale establishments and retail stroes.
  • Protecting inventory from theft, misplacement, deterioration likewise contributes to operational efficiency and business profits.
A

Ensuring Continuous Operations

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2
Q
  • Inadequate forecasting
  • Lost or misplaced inventory
  • Poor shelving or storage systems
  • Inadequate stock measurements
A

72% of the Root Causes of Running out of Stock can be Found in the Store:

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3
Q

Would increase costs but would not improve service equality in these cases because customers will still be prevented from accessing that stock efficienty due to these fundamental problems.

A

Having More Inventory

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4
Q

The level that minimizes stockouts and eliminates excess inventory saves money and contributes to operating profits.

A

Maintaining Optimal Inventory

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5
Q
  • economic order quantity
  • Statistical inventory control
A

Methods of Inventory Cost Control

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6
Q

A relatively simple index that determines the purchase quantity of an item (some of which will be carried in inventory) that will minimize total costs.

  • Traditional Method
A

Economic order quantity

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7
Q

Accommodates the variability of supply and demand using a targeted service level. This method allows you to determine statistically the appropriate amount of inventory to carry.

  • More advanced method
A

Statistical Inventory Control

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8
Q
  • Storage (land and buildings, shelving and organization systems)
  • Theft, weathering, spoilage, and obsolescence
  • Cost of capital (from tying up cash in inventory that could be better used elsewhere).
  • Transaction costs (from ordering, receiving, inspecting, transporting, and distributing inventory).
  • Insurance and security
  • Disposal costs ( of inventory that cannot be sold)
A

Costs Related to Inventory to Consider

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9
Q

Classifies items into three categories based on dollar velocity (purchase price X annual quantity consumed). Its purpose is to focus managerial attention on the most important items.

A

ABC Method

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10
Q

Holds a few high-value inventory items that account fo rhte largest percentage of total dollars or are otherwise critical in the production process and, therefore, deserve close control.

  • keep running record of recepits, withdrawals, and balances of each item.
    • a company can avoid unnecessarily heavy investment in costly inventory items.
A

Category A (ABC Method)

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11
Q

Less costly but deserve moderate managerial attention because they still make up a significant share of the firm’s total inventory investment.

A

Category B (ABC Method)

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12
Q

Contains low-cost or noncritical items, such as paper clips in an office or nuts and bolts in a repair shop. The carrying costs of such items are not large enough to justify close control. These items might simply be checked periodically to ensure that a sufficient supply is available.

A

Category C (ABC Method)

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13
Q

Designed to cut inventory carrying costs by making or buying what is needed just as it is needed.

  • Prevents buildup of unnecessary inventory
A

Just-In-Time Inventory Systems

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14
Q

Items are made or bought in response to demand.

A

Pull

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15
Q

Response to what is planned or anticipated

A

Push

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16
Q

Must be carefully considered as they all affect a firm’s ability to obtain materials quickly and in a predictable manner- a necessary condition for using this approach.

  • Supplier locations
  • Production schedules
  • Transportation timetables
A

Just-In-Time Inventory- Requires Careful Coordination with Suppliers

17
Q

Also requires a flexible production system, with short set-up and turnaround times.

A

Just-In-Time Inventory Systems

18
Q
  • Reducing in-house inventory
  • Creating a healthier balance sheet
  • Quality problems become more evident sooner, which reduces waste
  • Storage space, insurance costs, revolving credit are freed up for other purposes.
A

Benefits of Just-In-Time Inventory Systems

19
Q

A smooth and balanced system that responds nimbly to market demand.

A

Ultimate Objective of Just-In-Time Inventory Systems

20
Q
  • Raw materials and supplies
  • Work in process
  • Finished goods
A

3 Broad Categories of Inventory for Manufacturers

21
Q

These inventory records are more complex than those of wholesalers and retailers.

A

Manufacturing Inventory

22
Q
  • Physical inventory system
  • Cycle counting
  • Perpetual inventory system
  • Two-bin inventory system
A

Ways to Carry out Inventory Checks

23
Q

Depends on the actual count of items on hand. The counting is done in physical units, such as pieces, gallons, or boxes. By using this method, a girl can create an accurate record of its inventory level at a given point in time.

A

Physical Inventory System

24
Q

Scheduling different segments of the inventory for counting at different times during the year. This simplifies the process and makes it less of an ordeal for the business as a whole.

A

Cycle Counting

25
Q

Provides an ongoing, current record of inventory items. It does not require a physical count. however, a physical count of inventory should be made periodically to ensure the accuracy of the system and to make adjustments for such factors as loss or theft.

A

Perpetual Inventory System

26
Q

This is the simplest method. For each item in inventory, the business sets up two containers, each holding enough to cover lead time.

A

Two-Bin Inventory System