Chapter 5 Flashcards
why is low inventory good?
opportunity cost of investing in the asset can be used elsewhere
less storage and handling costs
less taxes and insurance
Inventory holding costs are generally what percent? what are they used for?
20-40% of value
storage and handling, taxes, insurance, and shrinkage.
why would you want high inventories
reduced potential for stock outs
if there are high ordering costs
if there are high Set up costs
if transportation costs are high
inventory reduction tactics?
- order goods closer to when they’re demanded.
- Decoupling inventory - reduce predictable variation
- Anticipation inventories - match demand with production rate. can b done by adding new products with different demand cycles. offer seasonal pricing plans. off season promotions.
- cycle inventory
-reduce lot size
5 pipeline inventory - reduce the lead time. how long it takes to get through the process.
What is significant about placing manufacturing inventories? 2 types of items?
it can be done strategically. either as raw mats, WIP, or finished goods.
- special
- item that’s made to order. if purchased it is bought to order - standard
- item that is made of stock Or ordered to stock, an is available upon request
ABC analysis
A 20% of items with 80% dollar value
B 30% of items with 15% dollar value
C 50% of items with 5% of dollar value
Economic Order Quantity (EOQ) is what?
lot or order size that minimizes total annual inventory holding and ordering costs
annual cycle cost formula? how about EOQ formula?
(lot/2)holding cost + (quantity/lot)order cost
sqrt of:
(2demandorder cost)/holding cost
Continuous review system (q system) is what?
formula?
tracks remaining inventory of an item each time a withdrawal is made to determine when to reorder.
the inventory position measures the net quantity of an item available to satisfy future demand.
inventory position = on hand inventory + scheduled receipts - back orders
