Ch. 13 Flashcards
Inventory
a stock or store of goods
Little’s Law
the average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system
inventory turnover
ratio of annual cost of goods sold to average inventory investment
periodic system
physical count of items in inventory made at periodic intervals (weekly, monthly)
perpetual inventory system
system that keeps track of removals from inventory continuously, thus monitoring current levels of each item
two-bin system
two containers of inventory; reorder when the first is empty
universal product code UPC
bar code printed on a label that has information about the item to which it is attached
point-of-sale (POS) systems
record items at time of sale
lead time
time interval between ordering and receiving the order
purchase cost
the amount paid to buy the inventory
holding (carrying) cost
cost to carry an item in inventory for a length of time, usually a year
ordering costs
costs of ordering and receiving inventory
setup costs
costs involved in preparing equipment for a job
shortage costs
costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit
A-B-C approach
classifying inventory according to some measure of importance, and allocating control efforts accordingly
cycle counting
a physical count of items in inventory
cycle stock
the amount of inventory needed to meet expected demand
safety stock
extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability
Economic order quantity
EOQ - the order size that minimizes total annual cost.
6 assumptions of EOQ
- only one product is involved
- annual demand req’s are known
- demand is spread evenly throughout the year so that the demand rate is reasonably constant
- lead time is known and constant
- each order is received in a single delivery
- there are no quantity discounts
quantity discounts
price reductions for larger orders
reorder point (ROP)
when the quantity on hand of an item drops to this amount, the item is reordered
safety stock
stock that is held in excess of expected demand due to variable demand and/or lead time
service level
probability that demand will not exceed supply during lead time
fill rate
the percentage of demand filled by the stock on hand
fixed-order-interval model (FOI)
orders are placed at fixed time intervals
single-period model
model for ordering of perishables and other items with limited useful lives
shortage cost
generally, the unrealized profit per unit
excess cost
difference between pruchase cost and salvage value of items left over at the end of a period
