Chap 12 Flashcards
Definition of inventory
Stock of items kept to meet future demand
Definein dependant demand and dependant demand
Independant demand: Demand for finished goods or other end items that are sold to someone. It cannot be predicted
Dependant demand: sub assemblies or component parts used in the production of a final finished product. Is “lumpy”
What are the 4 types of inventory
List the 6 reasons for a company to hold inventory
What is the objective of inventory control
To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
What is a warehouse management system (WMS)
computer software that controls the movement and storage of materials within a warehouse, and processes the associated transactions
What are the 3 main concern of a business with inventory
- Security
- Safety
- Obsolescence
What are the 2 inventory counting system
- Perpetual (continuous) tracking
- Periodic counting
Definition of periodic counting
Physical count of items made at periodic intervals
Definition of perpetual tracking
keeps track of removals from and additions to inventory continuously, thus providing current levels of each item
4 things used for inventory replenishment
- RFID
- 2 bin system
- Fixed Order Quantity/Reorder Point Model*
- Bar code
Define the reorder point model / Fixed order quantity
An order of a fixed size is placed when the amount on hand drops below a minimum quantity called the reorder point
Definition of lead time
time interval between ordering and receiving the order
What are the 3 inventory costs
- Holding cost*
- Ordering cost*
- Shortage cost
* are the 2 costs concidered for the calculation of the EOQ
Definition of ordering cost
costs determining order quantity, preparing purchase orders, and fixed cost portion of receiving, inspection, and material handling
What is the ABC classification system of inventory
Classifying inventory according to some measure of importance and allocating control efforts accordingly
Definition of cycle counting of inventory
Regular actual count of the items in inventory on a cyclic schedule
Fixed order quantity model : Define the Economic Order Quantity
The order size that minimizes total inventory control cost
What are the 7 assumptions of the Economic Order Quantity model (EOQ)
1) Only one product is involved
2) Annual demand requirements known
3) Demand is even throughout the year
4) Lead time does not vary
5) Each order is received in a single delivery
6) There are no quantity discounts
7) Shortage is not allowed
What are the 3 advantages of the Economic Order Quantity (EOQ) Model
- The EOQ model is robust
- It works even if all parameters and assumptions are not met
- The total cost curve is relatively flat near the EOQ
Define the Economic Production Quantity model (EPQ)
It is similar to the Economic Order Quantity model, except orders are received incrementally during production
Definition of reorder point
When inventory level drops to this amount, the item is reordered.
Definition of safety stock
Stock that is held in excess of expected demand due to variability of demand and/or lead time.
What are the 4 determinants of reorder point
- Rate of demand
- Lead Time
- Demand / Lead time variability
- Safety stock
