BSCM - 6 - Aggregate Inventory Management Flashcards
Inventory of material that has not undergone processing at a facility.
RAW MATERIAL
A financial statement showing the net income for a business over a given period of time.
INCOME STATEMENT
Items used in support of general operation and maintenance and consumables used in the manufacturing process & supporting operations.
MRO
The number of times that an inventory cycles during the year.
INVENTORY TURNS
Goods in various stages of completion throughout the plant.
WORK IN PROGRESS
Inventory that results whenever quantity price discounts,shipping costs, setup costs, or similar considerations make it more economical to purchase or produce in larger lots than are needed for immediate purposes.
LOT SIZE INVENTORIES
An accounting classification useful for determining amount of direct materials, direct labor, and allocated overhead associated with the products sold during a given period of time.
COGS (COST OF GOODS SOLD)
A lack of materials, components, or finished goods that are needed.
STOCK OUT
A form of inventory build up to buffer against some event that may not happen (such as price increases, labor strikes, etc.)
HEDGE INVENTORIES
Inventory that is in transit between manufacturing and stocking locations.
TRANSPORTATION INVENTORY
Inventory located in warehouses and in transit between warehouses and the customer.
DISTRIBUTION INVENTORIES
A financial statement showing the assets, liabilities, and owner’s equity for a company at a given point in time.
BALANCE SHEET
Those items on which all manufacturing operations, including final test have been completed.
FINISHED GOODS
Inventory that is carried as a cushion to protect against forecast error.
FLUCTUATION INVENTORIES
Assets = Liabilities + Owner’s Equity
ACCOUNTING EQUATION
The cost of holding inventory, usually defined as a percentage of the dollar value of the inventory per unit of time.
CARRYING COST
Additional inventory above basic pipeline stock to cover projected tends of increasing sales, planned sales, planned sales promotions, seasonal fluctuations, plant shutdowns, and vacations.
ANTICIPATION INVENTORIES
What are the objectives of Aggregate Inventory Management?
- Support Business Strategy & Operations
- Ensure that inventory practices support financial objectives
- Balance customer service, operations efficiency, and inventory investment cost objectives
Those stocks or items used to support production, supporting activities, and customer service.
INVENTORY
What class of inventory is associated with PRODUCTION ACTIVITIES?
RAW MATERIALS & WIP
What class of inventory is associated with OPERATIONS ACTIVITIES?
MAINTENANCE, REPAIR, & OPERATING SUPPLIES
What class of inventory is associated with CUSTOMER SERVICE ACTIVITIES?
FINISHED GOODS, REPAIR PARTS, AND SPARES
What are the reasons for carrying inventory?
- The only good reason to carry inventory beyond current needs is if it costs less than NOT to carry it.
- Inventory enables the company to operate with different production rates and batch sizes throughout the supply, production, and distribution system.
What are the decision rules that management must establish about individual inventory items?
- Which individual items are most important?
- How to control inventory
- How much to order at one time?
- When to place an order.
What are the functions of inventory?
- ANTICIPATION INVENTORY
- SAFETY STOCK / FLUCTUATION INVENTORY
- LOT-SIZE INVENTORY
- TRANSPORTATION INVENTORY
- HEDGE INVENTORY
- BUFFER
What are the three main objectives of inventory?
- Best Customer Service
- Low-Cost Plant Operations
- Minimum Inventory Investment
What are the five categories of cost associated with inventory and management decisions?
- Item Costs
- Carrying Costs
- Ordering Costs
- Stockout Costs
- Capacity-Related Costs
How are item costs different for Purchased and Manufactured items?
Purchased includes the costs of the purchase price, plus transportation, customs duties, and insurance. The total of all these is called LANDED COST.
Manufactured Item costs include direct material, direct labor, and factory overhead.
LANDED COST
The total of all costs associated with purchased items: includes purchase price, transportation, customs duties, and insurance.
All costs attributable to the volume of inventory on hand in a designated time period, such as annual, monthly, etc. These costs can be broken down into three categories:
- CAPITAL COSTS
- STORAGE COSTS
- RISK COSTS
CARRYING COSTS
Money invested in inventory (cost of all purchased and WIP items) is capital that is not available to the company. The opportunity cost of that capital if invested at the prevailing interest rate or invested in other opportunities is considered a carrying cost. The higher the inventory investment, the higher the _________________.
CAPITAL COSTS
Include costs of utilities, workers, buildings, equipment maintenance, and security.
STORAGE COSTS
Include obsolescence, damage, pilferage, deterioration, insurance.
RISK COSTS
What are the four categories of ordering costs?
- Production Control Costs (Factory)
- Setup and Teardown Costs (Factory)
- Lost Capacity Cost (Factory)
- Purchasing Costs (Purchase Order)
