Chapter 7 Inventory Mgmt Flashcards
What Is Inventory?
Quantities of goods in stock.
- Manufacturing Inventory:
- Raw materials
- Component parts
- Work-in-process (WIP)
- Finished goods
Service Inventory:
- Involves activities carried out in advance of the customer’s arrival.
Primary functions of inventory:
- Prepare for uncertainty in the marketplace
- Manage dependencies in the supply chain ( safety stock).
Four categories of inventories:
- Raw materials.
- Work-in-process (WIP).
- Finished goods- products ready for shipment.
- Maintenance, repair & operating (MRO).
types of Inventory Costs(6)
- Direct cost
- indirect cost
- Fixed cost
- Variable cost
- Order cost
- Holding and carrying cost
Direct Cost
Directly traceable to unit produced, labor, etc.
Indirect cost
Not traced directly to the unit produced, overhead.
Fixed cost
Independent of the output quantity, buildings, equipment, & plant security.
Variable cost
Vary with output level, materials
Order costs
Direct variable costs making an order. In mfg. machine setup costs.
Holding and carrying costs
Incurred holding inventory in storage.
Why measure inventory investment?
So it will not adversely affect competitiveness.
Measure of Inventory cost:
- Value of inventory (found on balance sheet).
- Inventory turnover, how many times inventory “turns” in an accounting period. More is better!
inventory turnover ratio=Cost of Revenue/Average Inventory
RFID
Radio Frequency Identification (RFID)
Successor to barcode, tracks individual unit of goods. RFID does not require direct line of sight to read a tag. Information on tag is updatable.
RFID Automates Supply Chain
- materials mgmt
- manufacturing
- distribution center
- retailer store
Materials Mgmt
Goods automatically counted and logged when enter a warehouse.
