Exam 2 - Chapter 11 Flashcards
Inventory Management
[Test Question]
Inventory Management: involves planning and controlling the acquisition, storage, movement, and distribution of raw materials, subassemblies, and finished goods.
The primary functions of inventory are to
[Test Question]
The primary functions of inventory are to:
- Buffer uncertainty in the marketplace
- Decouple dependencies in the supply chain
- Geographically separate production from consumption, Stored capacity (production, but not services)
Types of Inventories
[Test Question]
- Raw materials
- Work in process (WIP)
- Finished goods
- Maintenance, Repair, and Operating (MRO)
- Cycle inventory (order or lot size inventory)
- Safety stock
Raw materials:
[Test Question]
Raw materials, component parts, subassemblies, and supplies are inputs to manufacturing and service-delivery processes.
Work-in-process (WIP)
[Test Question]
Work-in-process (WIP) inventory consists of partially finished products in various stages of completion that are awaiting further processing.
Finished goods
[Test Question]
Finished goods inventory is completed products ready for distribution or sale.
Maintenance, Repair, and Operating (MRO)
[Test Question]
Maintenance, Repair, and Operating (MRO) supplies are items used in operations but do not become parts of the finished goods, such as lubricants and cleaning supplies.
Cycle inventory (order or lot size inventory) [Test Question]
Cycle inventory (order or lot size inventory) is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption/sale.
Safety stock
[Test Question]
Safety stock inventory is an additional amount of inventory that is kept over and above the average amount required to meet demand.
Keeping a lot of inventory is not _____ _____
value adding
Should you have more inventory than you forecasted?
Yes, even it’s not value adding you can’t always perfectly forecast how much inventory you will need in the future. Therefore, you need to store a lot of inventory as you might need it in the future
Inventory management is the most _____ thing for companies to manage
difficult
Make sure you know difference between Maintenance, Repair, and Operating (MRO) and raw material
[Test Question]
Raw materials, component parts, subassemblies, and supplies are inputs to manufacturing and service-delivery processes.
Maintenance, Repair, and Operating (MRO) supplies are items used in operations but do not become parts of the finished goods, such as lubricants and cleaning supplies.
Cycle inventory example:
toilet paper
- you buy more than u need
Absolute Value of Inventory
[Test Question]
- can be determined by annual stock counts
- report on the balance sheet
(class note:- how much you invest in your inventory)
Inventory Turnovers or Inventory Turnover Ratio
[Test Question]
- how many times inventory “turns” in an accounting period
- faster is better, suggesting the firm is able to generate more revenue per $ in inventory investment
Inventory turnovers=
(formula)
[Test Question]
Cost of revenue
_______________
Average Inventory
Can you compare automobiles to Walmart
No you can’t
You can’t compare apples to oranges.
Therefore, make sure you compare automobile with automobiles
________ can be one of the most expensive assets of an organization
inventory
Make sure to go on slide 5 and look at the math on how to calculate inventory turnover as he said there will be a test over it
[Test Question]
(Chapter 11- Slide 5)
Inventory managers deal with two fundamental decisions – ____ and _____ ______ to order or produce.
when; how much
Four categories of inventory costs:
[Test Question]
- Ordering or setup costs
- Inventory-holding or carrying costs
- Shortage or stockout costs
- Unit cost of the stock-keeping units (SKUs)
Ordering or setup costs:
[Test Question]
Ordering or setup costs
These costs are incurred as a result of the work involved in placing purchase orders with suppliers or configuring tools, equipment, and machines within a factory to produce an item.
Inventory-holding or carrying costs:
[Test Question]
Inventory-holding or carrying costs
These costs are the expenses associated with carrying inventory, such as storage, insurance, spoilage, shrinkage.
Shortage or stockout costs
[Test Question]
Shortage or stockout costs
These costs are the costs associated with a SKU being unavailable when needed to meet demand.
Unit cost of the stock-keeping units (SKUs)
[Test Question]
Unit cost is the price paid for purchased goods or the internal cost of producing them.
Ordering cost
time it takes to order from suppliers
Setup cost
time it takes to setup the product
Ordering or setup costs and inventory-holding or carrying cost are _____ related
inverserly
SKU
stock keeping units
identifies the model of the product
it does NOT identify specific products
Independent demand:
[Test Question]
is demand for an SKU that is unrelated to the demand for other SKUs and needs to be forecast – EOQ.
AKA a finish good or service part
Dependent demand:
[Test Question]
Dependent demand is demand directly related to the demand for other SKUs and can be calculated without needing to be forecast – MRP.
AKA the demand for component parts. you know exactly what you need
Deterministic demand:
Deterministic demand is when uncertainty is not included in its characteristics.
Stochastic demand:
Stochastic demand incorporates uncertainty by using probability distributions.
- in n out example depends on ur mood when u want a hamburgererer
Static demand:
Static demand is stable demand, whereas Dynamic demand varies over time.
A stock-keeping unit (SKU):
A stock-keeping unit (SKU) is a single item or asset stored at a particular location.
A SKU is a:
A SKU is a number (or string & number) that uniquely identifies a product.
The lead time:
The lead time is the time between placement of an order and its receipt.
Lead time example
how long it takes for amazon to ship a product
stockout:
A stockout is the inability to satisfy demand for an item. When a stockout happens, the item is either back-ordered or a sale is lost.
backorder:
A backorder occurs when a customer is willing to wait for an item.
lost sale:
A lost sale occurs when the customer purchases the item elsewhere.
Selling a Ford Truck
Truck
Tire
Which is the Independent demand and Dependent demand
[Test Question]
Independent demand
truck
Dependent demand
Tire
Independent demand
demand for the finish good and the service part
Dependent demand
demand for the independent demand part
After few years from buying the Ford Truck you need 5 more tires because they are broken. What would you consider the tires to be?
A. Independent demand
B. Dependent demand
A. Independent demand
ABC inventory/ABC analysis
managing your suppliers/customers into multiple classifications. You focus on managing group A since it 80%. B are the second important. C is the last group
Economic Order Quantity model
The purpose is to determine the optimal order quantity
Replenishment is instantaneous (Test Question)
suppliers supply the exact amount no more or no less.
Quantity discount Model
Relaxed constant price assumption
Economic Quantity Model
Relaxed the instantaneous replenishment
