Inventory Management Flashcards
Inventory
A stock of items kept to meet demand.
Carrying costs
The costs of holding an item in inventory.
Ordering costs
The costs of replenishing inventory.
Shortage costs
Temporary or permanent loss of
sales when demand cannot be met.
Continuous inventory system
A constant amount is ordered when inventory declines to a predetermined level.
Periodic inventory system
An order is placed for a variable amount after a fixed passage of time.
ABC system
An inventory classification system in which a small percentage of (A) items account for most of the inventory value.
Economic order quantity (EQQ)
The optimal order quantity that will minimize total inventory costs.
Order cycle
The time between receipt of orders in an inventory cycle.
Production quantity model
An inventory system in which an order is received gradually, as inventory is simultaneously being depleted.
Reorder point
The level of inventory at which a new order should be placed.
Stockout
An inventory shortage.
Safety stock
A buffer added to the inventory on hand during lead time.
Service level
The probability that the inventory available during lead time will meet demand.
Little’s law
Puts the inventory L (i.e., average number of objects in a system) in relation to the throughput rate λ (i.e., average arrival rate of objects) and the waiting time W (i.e., average time an object spends in the system).
L = λ · W
L = the average number of items in a queuing system λ = average rate at which items arrive W = waiting time, average time that an item spends in the system
