Chpt 13 Flashcards
What are 3 considerations for inventory management?
- How much to order
- When to order
- Maintaining enough inventory to meet demands, while being cost effective
5 types of inventory?
- Raw materials
- Purchased parts & supplies
- Work-in-process (partially completed products) or WIP
- Items being transported
- Tools and equipment
What are the 3 basic inventory costs?
- Cc - Carrying (or holding) cost
- Co - Ordering cost
- So - Shortage cost (stock out)
Continuous order (perpetual) system vs. Periodic order system
Continuous: fixed-order quantity to order when inventory declines to a predetermined level (fixed amount to minimize inventory costs)
Periodic/fixed-time-period: a method that specifies the variable quantity to order after a fixed passage of time (inventory on hand counted)
What is the MRP (material requirements planning) process?
A computerized inventory control & productions planning system - benefits when production is uncertain
- predicts timing & quantity of materials needed
- ensures materials are available when needed
- maintains the lowest possible level of inventory
What is to be inputted into. MRP?
Master Production Schedule (end items to be produced, how many needed & when) MPS
Product Structure File - file that contains Bill of Materials (BOM) for every item produced (BOM for one unit of product)
Item master file -
What are MPS quantities based on?
On production - from orders & demand forecasts. What needs to be produced. End items (may or may not be finished products)
What is a time phased bill??
An assembly chart shown against a time scale - forward or backward scheduling
Dependent demand vs independent demand?
Independant: demand for final product
Dependent: demand for component parts that make up a finished product
Why do companies hold inventories of finished goods?
To meet customer demand, have a buffer for variations in demand, address seasonal or cyclical demand, and take advantage of volume price discounts.
What are the key elements of inventory management?
Customer demand and inventory costs.
What are the three basic costs associated with inventory?
Carrying costs, ordering costs, and shortage costs.
What is a continuous inventory system?
A system that maintains a continual record of inventory levels and places orders when inventory reaches a predetermined level.
What is a periodic inventory system?
A system where inventory is counted at specific intervals, and orders are placed to replenish stock to a desired level.
What is the ABC system in inventory classification?
A method for classifying inventory based on dollar value, where Class A items are high-value, Class B items are moderate-value, and Class C items are low-value.
What is the Economic Order Quantity (EOQ)?
The optimal order quantity that minimizes the sum of carrying and ordering costs.
What is the Economic Production Quantity (EPQ) model?
A variation of the EOQ model where inventory is received gradually while it is being depleted.
How is the reorder point determined in a continuous inventory system?
It is equal to the amount demanded during the lead time.
What is the order quantity for a periodic inventory system?
It varies based on the time between orders and requires a larger safety stock.
What is the optimal order quantity in a single-period inventory model?
It minimizes the costs of shortage and excess, balancing the risks involved.
Why do companies hold inventories of finished goods?
To meet customer demand, have a buffer for variations in demand, address seasonal or cyclical demand, and take advantage of volume price discounts.
What are the key elements of inventory management?
Customer demand and inventory costs.
What are the three basic costs associated with inventory?
Carrying costs, ordering costs, and shortage costs.
What is a continuous inventory system?
A system that maintains a continual record of inventory levels and places orders when inventory reaches a predetermined level.
What is a periodic inventory system?
A system where inventory is counted at specific intervals, and orders are placed to replenish stock to a desired level.
What is the ABC system in inventory classification?
A method for classifying inventory based on dollar value, where Class A items are high-value, Class B items are moderate-value, and Class C items are low-value.
What is the Economic Order Quantity (EOQ)?
The optimal order quantity that minimizes the sum of carrying and ordering costs.
What is the Economic Production Quantity (EPQ) model?
A variation of the EOQ model where inventory is received gradually while it is being depleted.
How is the reorder point determined in a continuous inventory system?
It is equal to the amount demanded during the lead time.
What is the order quantity for a periodic inventory system?
It varies based on the time between orders and requires a larger safety stock.
What is the optimal order quantity in a single-period inventory model?
It minimizes the costs of shortage and excess, balancing the risks involved.
