Domain I – Business Acumen – Section B: Organizational Structure and Business Processes - Bis Flashcards
Inventory Costs
includes Order costs, Holding (Carrying) costs, Stockout costs
Order costs
are the costs associated with preparing and making a purchase order.
Holding (Carrying) costs
are the costs of storing inventory, which include: rent, insurance, property taxes, control and security costs, costs associated with spoilage, theft, and obsolescence, opportunity cost in terms of holding inventory assets rather than investing in other revenue‐generating assets.
Stockout costs
which are the costs associated with running out of inventory, such as negative customer goodwill and lost profits.
Economic Order Quantity (EOQ)
is a quantitative method that minimizes the inventory costs.
Lead time
is the time between placing an order and receiving it.
Reorder Point
represents the inventory level at the time of reorder:
- Reorder Point = Daily Demand (DD) x Lead time (days)
- Daily Demand = D/360
Safety Stock
- To avoid stockouts, firms may use safety stock.
- Reorder point with safety stock:
=> Reorder Point = [Daily Demand (DD) x Lead Time (days)] + Safety Stock
ABC analysis
divides the firm’s inventory items according to importance into three groups:
a. Group A (Critical items) – make‐up 60‐70% of the firm’s business in dollars but only 10‐15% in the number of items. Apply quantitative methods to manage all items.
b. Group B (Important items) – make‐up 20‐25% of the firm’s business in dollars and 20‐25% in the number of items. Apply quantitative methods to manage selected items.
c. Group C (Low importance items) – make‐up 10‐15% of the firm’s business in dollars but 60‐70% in the number of items. Requires minimum quantitative management control.
Just‐in‐time (JIT) systems
are inventory management systems whereby inventory arrives in time for use for manufacturing or sale. The objective of the JIT systems is to minimize inventory and thereby reduce costs associated with holding inventory.
Project management techniques
are methods that aid managers to plan, schedule,
monitor, and control the activities involved in projects. Popular techniques for project management include:
1. Gantt Charts
2. Program Evaluation Review Technique (PERT)
3. Critical Path Method (CPM)
Gantt Charts
are graphical presentations of resource management and scheduling.
=> They are considered an alternative to PERT/CPM methods to project management and resource
scheduling.
PERT (Program Evaluation Review Technique)
is a probabilistic quantitative analysis technique used by project managers to:
=> Plan => Schedule => Monitor => Control
Expected Activity Time (T)
= (O + 4M + P) / 6
O = Optimistic time
M = Most likely time
P = Pessimistic time
Critical Path
a. The critical path is the longest time path through the network.
b. The critical path is also the minimum time required to complete the project.
c. Any increase or decrease in the critical path will delay or shorten the project.
Critical Path Method (CPM)
is a deterministic quantitative analysis technique used by project managers similar to PERT
The Theory of Constraints (TOC)
is a management philosophy that focuses on improving
the performance of a constraint that affects the organization’s net income by concentrating available resources on that constraint.
Contract
is an enforceable promise (or a set of promises) made between two or more parties.
Express contract
is a contract formed by language and may be either oral or written.
Implied contract
is a contract formed by actions of either one/or both parties.
A contract is considered executory
if there are unperformed duties in the contract.
A contract is considered executed
if all the duties in the contract have been performed.
Novation (contract)
is a new agreement that substitutes an existing contract.
Void (contract)
implies that the contract does not exist even if there are all the other necessary elements of a contract i.e., the contract may not be enforced by either party.
