Ch 7 Inventory Management Flashcards
dependent demand definition
the internal demand for parts based on the demand of the final product in which the parts are used
Ex. of dependent demand items
subassemblies
components
raw materials
definition: independent demand
the demand for final products & has a demand pattern affected by trends, seasonal patterns and general market conditions
why is inventory management important?
to avoid stockouts and excessive inventory
what are the primary functions of inventory? pick 2
- buffer from uncertainty in the marketplace
2. decouple, break the dependencies in the supply chain
what is safety (buffer) stock? related to decouple
can be used to cushion uncertainties due to fluctuation in supply, demand and/or delivery time
what are the 4 broad categories of inventories?
raw materials
work in process (WIP)
finished goods
maintenance, repair & operating (MRO)
what is work in process (WIP)?
partially processed materials not yet ready for sales
what are finished goods?
products ready for shipment
what is maintenance, repair & operating (MRO)?
materials used in production (ex. cleaners & brooms)
what are the 7 categories of inventory costs?
direct costs indirect costs fixed costs variable costs order costs setup costs holding or carrying costs
what are direct costs?
directly traceable to unit produced
ex. of a direct cost
amount of labor and materials used to produce the finished good
indirect costs
cannot be traced directly to the unit produced
ex. of an indirect cost
maintenance
repair
supplies
fixed costs
independent of the output quantity
ex. of a fixed cost
buildings
equipment
variable costs
vary with output level
ex. of variable costs
materials
order costs
direct variable costs for making an order
setup costs
related to machine setups to produce a batch of product
holding or carrying costs
incurred for holding inventory in storage
what is cycle counting for ? ex. Walmart inventory night
to reconcile discrepancies between their physical inventory and inventory record on a monthly or quarterly basis
ABC inventory control system
determines which inventories should be counted & managed more closely than others
