Chapter 7 Flashcards
What is Inventory?
The stock of any item or resource used in an organization.
What four categories can inventory be broken down into?
Raw Materials
Work-in-Progress
Finished Goods
Maintenance Repair and Operating
Where is inventory required in the supply chain?
Throughout the whole supply chain.
What are the two types of demand?
Independent and Dependent
What is Independent Demand?
Finished goods (they don’t depend on anything as they are already complete)
What is the function of independent demand?
Buffer uncertainty in the marketplace (satisfy customer demand)
What is Dependent Demand?
Work-in-progress goods
What is the function of dependent demand?
Decouple dependencies in the supply chain (facilitate production)
What are methods of inventorying?
Physical Inventory
Cycle Counting
RFID
What is the least effective inventorying method?
Physical Inventory
What are the characteristics of physical inventory?
- Labor and time-intensive
- Requires facility downtime
- Takes place once a year
- Provides annual data on inventory variances
What are the characteristics of cycle counting?
- More labor and time-efficient
- No facility down-time
- Takes place on a regular basis for specific items
- Pro-actively reduces inventory variances
What is the RFID inventory method?
You tag products and use a scanner to inventory.
What are inventory-related costs?
Direct Costs Indirect Costs Ordering/Setup Costs Carrying (Holding) Costs Stockout Costs
What are Direct Costs?
“Costs that are directly traceable to the unit produced, such as the amount of materials and labor used to produce a unit of the finished good”.
What are Indirect Costs?
“Those costs that cannot be traced directly to the unit produced and are synonymous with manufacturing overhead”.
What are the carrying costs?
- Risk Costs (Obsolescence & Shrinkage)
- Storage Space Costs (Renting Warehouse)
- Service Costs (Insurance costs & Taxes)
- Capital or Finance Costs (Interest & Opportunity)
What are Stockout Costs?
The cost of not having inventory on hand when demand occurs.
What is the Two-Bin System?
You have a bin of products (such as nails) and once it is empty you bring it to the supplier to be refilled. (Order a whole bin)
What is the One-Bin System?
When your bins inventory reaches a certain point it is restocked fully. (Order enough to fill the bin)
In Bin inventory do you need to know exactly how much inventory you have?
No, it goes based off of how full the bin is not the amount in it.
What is EOQ?
“The classic independent demand inventory system that computes the optimal order quantity to minimize total inventory costs.”
What factors are used to determine EOQ?
Holding Costs and Ordering Costs`
How do we reduce TAIC?
Sending less orders
Keeping less inventory
What is the popular inventory model?
EOQ
When does not do well?
When there are multiple locations
When demand is not constant
What are the primary functions of inventory?
Buffer and Decouple
What is the ABC inventory control system?
Determines which inventories should be counted & managed more closely than others.
How is ABC inventory grouped?
-A items: highest priority, high monitoring. 20% of the total items & about 80% of the total sales revenue
–B items: 40% of total items & 15% of total sales revenue. –C items: lowest value and lowest priority. 40% of total items & 5% of total sales revenue.
