Final Flashcards
The planning and controlling of inventories to meet the competitive priorities of the organization.
Inventory Management
Simple definition: quantities of goods in stock
Inventory
Materials and supplies that a firm carries either to sell or to provide inputs or supplies to the production process is known as
Inventory
What are the 6 distinctive characteristics of service operations
Customer Participation
Simultaneity
Perishability
Intangibility
Heterogeneity
Nontransferable Ownership
Which distinctive characteristic deals with the attention to facility design, opportunities for co-production
Customer Participation
Which distinctive characteristic deals with services created and consumed simultaneously, cannot be stored
Simultaneity
Which distinctive characteristic deals with cannot inventory, opportunity loss of idle capacity, need to match supply with demand
Perishability
Which distinctive characteristic deals with services are ideas and concepts, service innovations are not patentable, franchising, importance of reputation
Intangibility
Which distinctive characteristic deals with customer involvement in delivery process results in variability
Heterogeneity
What distinctive characteristic deals with services do not involve transfer of ownership
Nontransferable Ownership
T/F- “Inventories” in services are often intangible and cannot be stored
True
What is an example of service inventory?
Inventory in an emergency room would be people waiting
OR
Seats available in a classroom or theater
What are the 2 forms of Inventories?
Accounting
Operational
T/F- Manufacturing Inventory falls under the category of Accounting Inventories
True
What are three ways that manufacturing inventories can be identified by?
Raw Materials- purchased items received, but not yet transformed
Work-in-process - Raw materials that have entered the transformation process & are in process or waiting
Finished Goods- Finished products of the transformation process that are ready to be sold
Explain the chocolate chip cookie example for manufacturing inventory
Which type of inventory is not readily visible?
Operation Inventories
What are the characteristics of operational inventories
Cycle Stock (Q/2)
Safety Stock
Anticipation Inventory
What is cycle stock?
Inventory for immediate use
typically produced in batches (production cycle)
Inventory for immediate use
typically produced in batches (production cycle) is known as
Cycle Stock
What is safety stock?
Extra inventory carried for uncertainties in supply and demand
Extra inventory carried for uncertainties in supply and demand is known as
Safety Stock
T/F- Safety stock is also referred to buffer stock
True
What is anticipation inventory?
- inventory carried in anticipation of events
- smooth out the flow of products in supply chain
- also called “seasonal” or “hedge” inventory
Inventory carried in anticipation of events and help smooth out the flow of products in supply chain is known as?
Anticipation Inventory
T/F- Anticipation inventory is also called “seasonal” or “hedge” inventory
True
What are the characteristics of Pipeline Inventory?
- Inventory in transit
- exists because points of supply and demand are not the same
T/F- Pipeline inventory is also called “transportation” inventory
True
What are 5 pressures for large inventories or why should firms carry inventory?
1) Protect against lead time demand
2) Maintain independence of operations
3) Balance supply and demand
4) Buffer uncertainty, i.e. “Safety Stock”
5) Economic purchase orders, i.e. buying in bulk to take advantage of reduced cost/unit
What are the 6 pressures for small inventories or why should firms NOT carry inventory?
1) Inventory holding cost
2) Cost of capital
3) Storage and handling costs
4) Taxes
5) Insurance
6) Shrinkage
- Pilferage
- Obsolescence
- Deterioration
What are the three types of inventory costs?
Holding Cost
Ordering Cost
Shortage Cost
Which costs vary with the amount of inventory held and are typically described as a % of inventory value
Holding Cost
T/F- Holding Cost is referred to as carrying cost
True
Which costs are involved in placing an order and are inversely related to holding cost
Ordering Cost
T/F- Ordering costs are also referred to as “setup” cost
True
This cost occurs when the company runs out of stock
Shortage Cost
A methodology to help us understand inventory policy
Inventory System
The inventory policy addresses two questions concerning the replenishment of inventory: What are the two questions?
1) When should an order be placed?
2) How much should be ordered?
What are the two common inventory systems that help answer the questions “when and how much”
1) Fixed-Order Quantity System (Q System)
2) Fixed- Time Period System (P System)
An order of fixed quantity is placed when inventory drops to a reorder point, ROP
Fixed- Order Quantity System
When inventory is checked in fixed time periods, T, and the quantity ordered varies this is referred to as
Fixed-Time Period System (P System)
An order is only placed when inventory drops to a specified level, this is known as
Reorder Point (ROP)
The amount requested in each order placed will always be the same quantity. This is known as
Quantity (Q)
T/F- The time interval between order changes from order to order
True
An order is placed every “T” time periods. What does T stand for
Known as fixed time intervals
—the time between orders is exactly the same from order to order
T/F- In a Fixed-Time Period System or P System, the amount requested in each order placed will vary and is based on refilling back up to the target inventory level “R”
True
T/F- Inventory policy is based on the type of demand
True
What are the two types of demands?
Independent and Dependent
Demand for a finished product is known as
Independent Demand
Demand for components parts or subassemblies is known as
Dependent Demand
What is one example of Demand
1 finished Tesla (independent) requires 4 tires (dependent)
The relationship between independent and dependent demand is shown in a?
Bill of Materials (BOM)
An inventory control system that is used to compute order quantities for dependent demand inventory items. This is known as
Materials Requirements Planning (MRP)
T/F- MRP relies heavily on manual input from their users to create production schedules
True
A list that shows all of the raw materials and subassemblies that go into a product. It also shows the quantities and relationships of items needed to make a final product. This is known as
Bill of Materials
A large software program used for planning and coordinating all resources throughout the entire enterprise
Enterprise Resource Planning (ERP)
This system calculates quantities of dependent demand items to complete the independent demand order. This also factors in lead times for each dependent demand item
MRP System
Dependent demand order quantities are calculated automatically by what kind of system
MRP System
What calculated inventory systems are designed for use with independent and dependent demand
Q and P System
What is the acronym for EOQ
Economic Order Quantity
Which formula provides the ideal quantity to be purchased that minimizes Total Cost?
EOQ Formula
1)What is minimized when the ordering cost equals the holding cost.
2) At this intersection that the optimal value of What is revealed
1)Total Cost
2) EOQ or “Q”
What is the formula for Total Cost
(Q/2) H + (D/Q) S
What is the formula for holding cost?
(Q/2) H
What is the formula for total ordering cost?
(Q/2) S
How do you determine how many orders will be placed in one year?
Demand divided by Q
In what kind of system, a quantity “Q” is determined when an order is to be placed by comparing the current inventory level to a predetermined Target Inventory value
P System
The Target Inventory level “R” is determined by
R= demand during lead time + demand during the review period
The order quantity in a P system is then determined by
Q=R- IP
The formula for inventory position is?
IP= OH + SR -BO
Inventory Position= On hand inventory + scheduled receipts - backorders
Go to slide 8- 15 on part 4 to work problem
The process of dividing
SKUs into three classes,
according to their dollar
usage, so that managers
can focus on items that
have the highest dollar
value.
ABC Analysis
When total cost changes little on either side of the EOQ
-managers can adjust to accommodate needs
What term is described?
EOQ Adjustments
Storage capacity and costs should be considered when ordering large quantities. This is known as
Capacity Constraints
What is the formula for weeks of supply?
Average on-hand inventory divided by
average weekly usage
What is the formula for inventory turns
D/ (Q/2+SS)
Given a fixed-order quantity model with:
Annual Demand (D) = 1,000 units
Order Quantity (Q) = 250 units
Safety Stock (SS) = 50 units
What is the Average inventory?
Q/2 + SS
= 250/2+50 = 175 units
Given a fixed-order quantity model with:
Annual Demand (D) = 1,000 units
Order Quantity (Q) = 250 units
Safety Stock (SS) = 50 units
What is the Inventory Turn?
= D/ (Q/2+SS)
= 1,000 /175= 5.71 turns
What does VMI stand for?
Vendor Management Inventory
T/F- VMI arrangements have the vendor responsible for managing the inventory located at a customer’s facility
True
What job is charge of
stocking inventory
placing replenishment orders
arranges displays
owns inventory until purchased
and is required to work closely with customers
Vendors
What is SCOR?
Supply Chain Operations Reference
A management tool used to address, improve, and communicate supply chain management decisions within a company, with their suppliers, and with their customers
This is known as?
SCOR
A model that describes the business processes required to satisfy customer’s demands
SCOR Model
SCOR is a framework that focuses on six areas of the supply chain. What are the 6 areas?
Plan
Source
Make
Deliver
Return
Enable
This term is defined as “a basic structure underlying a system, concept, or text.”
Framework
T/F- SCOR is a process framework
True
Process frameworks deliver the known concepts of (4)
- business process reengineering
-benchmarking
-best practices
-organizational design in a cross-functional framework
This form of process: Plan Source, Make and Deliver
Standard Process
This framework does Perfect Order Fulfillment, Cash-to-Cash Cycle Time, Total Cost
to Serve
Standard Metrics
What type of practices make up EDI, CPFR, S&OP, and Cross-training
Standard Practices
