Chapter 14 - Inventory Flashcards
What are three costs of low levels of stock?
- Increased chance of stock outs
- High cost of reordering stock
- Low quantity discounts
What are three costs of high levels of stock?
- High storage costs
- Financing needed which costs ie bank loan
- Possible obsolescence e.g phones
What does the economic order quantity do?
Minimize the total annual cost
What is a Just in time policy?
The policy to obtain goods from suppliers at the latest possible time
What does a company need to have a successful JIT policy?
A reliable supplier who can supply high quality inventory with a predictable lead time.
What is the objective of good inventory management to determine?
Optimum reorder level
Optimum reorder quantity
What is periodic review?
Inventory levels are reviewed at fixed intervals, e.g. every four weeks
Who is periodic review popular with and why?
Suppliers - because system orders are evenly spread.
What are the three aims of a JIT system?
- Smooth flow of work
- Flexibly production process
- Reduction in capital tied up in inventory
What is the re-order level?
The measure of inventory at which a replenishment order should be made
True or False?
Use of a re-order level builds in a measure of safety inventory and minimises the risk of the organisation running out of inventory.
True
