Chapter 24 Flashcards
What are the 3 forms of inventory?
- raw materials
- Work in progress
- Finished goods
Why is inventory management important?
- meeting unforeseen changes in demand
- out-of-date inventories could be held
- inventory wastage
- excessive storage costs for high inventory
- poor supply management
What are the costs that come with holding inventory?
- storage costs
- opportunity cost (this tied up money in inventories could be used somewhere better)
- not sold or unused inventory could just go to waste
What comes with not having enough inventory?
You lose sales
If inventory is raw materials, production stops (“idle production)
Special orders can be costly
Could have resulted from not ordering enough
What comes with having too much inventory?
Wastage
Opportunity cost
Obsolescence e.g. out of date technology
Costs (like staff and electricity)
What is the importance of buffer inventories?
These make sure we don’t run out of materials while the order that’s not arrived and ensures that the business can keep working.
What is the lead time in inventory control?
The lead time represents the time between when they new stocks have been ordered and when they arrive
What is important to successfully introducing Just in time inventory control?
- a good relationship with suppliers
- multi-skilled staff ready to change jobs so lots of the excess of the same product isn’t made
- equipment and machinery must be flexible enough to make a range of products
- accurate demand forecasts
- good employee- employer relationships
What are the advantages to JIT inventory control?
- costs of storage and inventory are lowered
- response time to consumer demand changes is faster
- opportunity cost of inventory holding is reduced
Disadvantages of JIT inventory control?
- failure to supply products in time leads to production delays
- frequent small deliveries in JIT will increase costs
- reduction in bulk discounts offered since small deliveries
- no buffer to cover any supply, employee and people problems
What are the positive effects of JIT?
- less poorly used and wastage of resources
- more accountable resources
- reliable suppliers
Why is JIT not suitable to all firms at all times?
- greater cost of having halted production over usage of buffer costs
- small firms could argue expensive IT systems are needed to effectively operate JIT
- global inflation makes holding stocks more beneficial since it might be cheaper to buy in bulk now than small quantities in the future when prices go up
What are the priorities of JIT?
-quality
What can help reduce waste levels?
Efficient management of inventories
This can also create added value for a business
What are the directly vertical lines on a inventory control chart?
The days of delivery
