Inventory Control Flashcards
What are some of the risks associated with inventory levels being too low?
Loss of sales from being on able to provide the goods required immediately.
Loss of customers Goodwill from being l unable to satisfy their demand.
High transport costs incurred to replenish inventory quickly.
Lost production due to shortage of raw materials.
Inefficient production scheduling due to shortages.
Purchasing inventory at a premium.
What is lead time
The time lag between placing an order for goods or services and the delivery to the required location
How do I figure out the re-order level for inventories
You need to know the lead time for orders and the annual demand of the orders.
Figure out the weekly average demand for the infantry item. By dividing the total annual demand by 52.
Then figure out how much ato k will be sold during the lead time. For example if it’s 200 units a week and the lead time for orders is four weeks. Then you would times 200 x 4 to figure out that you would sell 800 units in four weeks. Therefore the company should we order no later then when the stock levels goes down to 800 units
How to determine the amount of safety stock?
It is a matter of judgement depending on the degree of uncertainty, the likely cost of running out of an item and the cost of holding the buffer stock
What is the ABC system of stock control
The ABC system is based on the idea of selective levels of stock control.
The business may be able to divide its stock into three broad categories each based on the value of the stock held.
What does the economic order quantity model answer?
How much inventory should be ordered
It calculates the optimum size of a purchase order by taking into account the cost elements of holding stock and the cost of ordering stock
What does high inventory levels imply
Infrequent re-ordering and low annual ordering costs.
It also implies high inventory holding costs
What does small inventory ordering levels imply
It implies frequently ordering and high annual ordering costs.
It also implies relatively low inventory holding costs
How do you calculate economic order quantity?
The square root of 2DC divided by Hache
Where D equals the annual demand for the item of inventorying.
See equals the cost of placing an order.
H is equal to the cost of holding one unit of inventorying for one year
Note that the EEO cuboidal is only concerned with the admin costs of placing each order and the cost of looking after the stock
What are the limitations of the economic order quantity model
Demand for the product can be predicted with accuracy
This demand is even over the period and does not fluctuate through seasonality or other reasons
No buffer inventory is required
There are no discounts for bulk purchasing
The model can be developed to accommodate the problems of uncertainty and uneven demand
What is just in time stock management
A system of managing inventories that aims to have supplies delivered just in time for the required use in production or sales
The philosophy behind this method is concerned with eliminating waste and striving for excellence
What are some of the risks or disadvantages of just-in-time inventorying management
The business needs to have a close relationship with that supplies.
The failure of a particulars supplier to deliver on time could cause enormous problems and cost of the business.
It means a business is reliant on a close relationship with supplier and may miss out on opportunities for cost savings.
Because the business is holding less inventory it may require the supplier to hold inventory instead. The supplier might raise their prices to recoup the costs.
