Introduction to Logistics Flashcards
Every year it costs 40% of the value of the product to keep it in inventory. What are these costs?
Cost of capital, warehouse costs, labour, tax and pilferage.
Finish the sentence:
“The more inventory you have…”
“… the more costs you have as a company”
How is inventory an ‘opportunity cost’?
If you’re just going to buy lots of inventory for it to just sit in a warehouse, then why buy it in the first place?
It only reduces potential profit and adds to your company costs.
What forms of inventory are there?
Raw materials, work in progress (WIP) and finished goods.
Why is inventory necessary?
Because demand and supply are not synchronised.
What is a ‘response based model’ attitude to inventory?
It is where a company will only order components once an order has been placed.
What is an ‘anticipatory based model’ attitude to inventory?
It is where a company will have some inventory as it anticipates orders from customers.
What benefits are there to an ‘anticipatory based model’ attitude to inventory?
A company with an ‘anticipatory based model’ attitude to inventory will benefit from economies of scale from their orders of components.
The company will also benefit from higher customer service satisfaction rates as clients won’t need to wait as long for their products.
What conflicts could there be within a company which uses ‘anticipatory based model’ attitude to inventory?
Customer service focused staff may press for higher levels or inventory as they reduce customer wait times, however economically focussed staff may push for less inventory as inventory is costly.
What three problems are there with keeping inventory?
- It is costly to tie up money in products laying around in a warehouse
- It takes up valuable space within the warehouse, incurring storage costs
- Inventory is at risk of deterioration, pilferage etc.
What need is there for inventory?
It provides security against uncertain amounts of supply and demand
What four reasons are there for holding large amounts of inventory?
- Production rates of component suppliers may be uneven
- Reduced freight costs (just one big delivery truck instead of lots of little ones - economies of scale)
- Anticipated price rises
- Discounts for ordering lots of inventory at once (economies of scale, again)
What are the four different types of inventory?
- Buffer stock
- Cycle inventory
- Anticipatory inventory
- Pipeline inventory
What is buffer stock?
A reserve of stock a company has to avoid ‘stock outs’, in case of a spike in demand etc.
What is an example of cycle inventory?
A supermarket can only bake one type of bread in their oven at once, so they have to bake in batches which are large enough to satisfy demand until the next batch is ready.
