Inventory Management Flashcards
Inventory
any asset held for future use or sale (including raw materials, parts, ect.)
Inventory Management
This is essentially keeping track of raw materials, parts, and finished products
It involves planning, coordinating & controlling the acquisition, storage, handling, movement, distribution and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets to meet customer wants and needs.
3 types of inventory:
1) Raw materials, parts, supplies: inputs to manufacturing 7 service-delivery processes
2) Work-in-progress inventory: partially finished products in various stages of completion awaiting further processing
3) Finished goods inventory: completed products ready for distribution and sale to consumers
Effective Inventory Management involves:
- a system to keep track of inventory on hand and on order
- a sales forecast for your firm
- knowledge of lead times
- knowledge of inventory costs
- a classification system
Ordering Costs
cost if ordering and receiving raw materials
Shortage Costs
when demand exceeds supply; opportunity costs of not making sales
Holding Costs
Cost to carry raw materials and finished goods inventory
Safety Stock Inventory
an additional amount of inventory kept over and above the amount required to meet expected demand
Stock-outs
inability to satisfy demand for an item (resulting in either a backorder or lost sales) –> A situation when an item is out of stock
Lost sale
occurs when the customer is unwilling to wait and purchases the item elsewhere
The two fundamental questions inventory managers deal with:
1) When to order items from a supplier or when to initiate production runs (if the firm manufactures its own products)
2) How much to order (from suppliers) or produce each time a purchase order or production order is placed.
Safety Stock equation:
(prior period sales / 52 weeks) X number of weeks of desired safety stock
