Chapter 13: Inventory Management Flashcards

1
Q

Inventory

A

A stock or store of goods

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2
Q

Different Kinds of Inventories

A

Raw materials and purchased parts
Partially completed goods, called work-in-process (WIP)
Finished goods inventories or merchandise
Tools and supplies
Maintenance and repairs inventory
Goods-in-transit to warehouse, distributors, or customers (pipeline inventory)

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3
Q

Functions of Inventory

A
  1. To meet anticipated customer demand
  2. To smooth production requirements
  3. To decouple operations
  4. To protect against stockouts
  5. To take advantage of order cycles
  6. To hedge against price increase
  7. To permit operations
  8. To take advantage of quantity discounts
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4
Q

Little’s Law

A

The average amount of inventory in a system is equal to the product of the average time a unit is in the system

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5
Q

Inventory Turnover

A

Ratio of average cost of goods sold to average inventory investments

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6
Q

Requirements for Effective Inventory Management

A
  1. Keep track of the inventory
  2. Forecast of demand
  3. Lead times variability
  4. Holding costs, ordering costs, and shortage costs
  5. Classification system
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7
Q

Periodic System

A

Physical count of items in inventory made at periodic intervals (weekly, monthly)

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8
Q

Perpetual Inventory System

A

Two containers of inventory; reorder when the first one is empty

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9
Q

Universal Product Code (UPC)

A

Bar code printed on a label that has information about the item to which it is attached

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10
Q

Point-of-sale (POS) Systems

A

Record items at time of sale

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11
Q

Lead Time

A

Time interval between ordering and receiving the order

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12
Q

Purchase Cost

A

The amount paid to buy the inventory

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13
Q

Holding (Carrying) Cost

A

Cost to carry an item in inventory for a length of time, usually a year

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14
Q

Ordering Costs

A

Costs of ordering and receiving inventory

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15
Q

Setup Costs

A

The costs involved in preparing equipment for a job

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16
Q

Shortage Costs

A

Costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit

17
Q

A-B-C Approach

A

Classifying inventory according to some measure of importance, and allocating control efforts accordingly

18
Q

Cycle Counting

A

A physical count of items in inventory

19
Q

Cycle Stock

A

The amount of inventory needed to meet expected demand

20
Q

Safety Stock

A

Extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability

21
Q

Economic Order Quantity (EOQ)

A

The order size that minimizes total annual costs

22
Q

Service Level

A

Probability that demand will it exceed supply during lead time

23
Q

Single-period Model

A

Model for ordering of perishables and other items with limited useful lives

24
Q

Shortage Cost

A

Generally, the unrealized profit per unit

25
Q

Excess Cost

A

Difference between purchase cost and salvage value of items left over at the end of a period