chapter 12 Flashcards
inventory
a stock or store of goods
independent-demand items
items that are ready to be sold or used
dependent-demand items
components used to assemble the product
importance of inventories
necessary for operations and contribute to customer satisfaction
overall objective of inventory management
to achieve satisfactory levels of customer service
keeping inventory costs within reasonable bounds
inventory turnover ratio
ratio of annual cost of goods sold to average inventory investment
effective inventory management
- keep track of inventory
- a reliable forecast of demand
- lead time and lead time variability
- holding costs, ordering costs, and shortage costs
- classification system
periodic system
physical count of items in inventory made at periodic, fixed intervals
perpetual inventory system
keeps track of removals from inventory continuously thus monitoring current level of inventory for each item
A-B-C approach
classifies inventory items according to some measure of importance and allocating control efforts accordingly
cycle counting
a physical count of items in inventory reduces discrepancies between the amounts indicated by inventory records and the actual quantities of inventory on hand
quantity discount
price reduction for larger orders offered to customers to induce them to bid in large quantities
reorder point (ROP)
when the quantity on hand of an item drops to predetermined amount, the item is reordered
safety stock
stock that is held in excess of expected demand due to variable demand and/or lead time
reduces the risk of stockout during lead time
fixed-order-interval (FOI) model
used when ordered must be placed at fixed time intervals
