Inventory Management Flashcards
Inventory
Materials and goods held by a business and required to allow for production of products and their supply to the customer
Forms of inventory
-Raw materials and components
-Work in progress
-Finished products
Inventory management
The process of ordering, storing and using a company’s inventory
Cost of holding inventory
-Opportunity costs
-Storage costs
-Risk of wastage and obsolescence
Benefits of holding inventory
-Reduced risk of loss of sales
-Allows for continuous production
-Avoids the need for special orders from suppliers
-Large orders of new supplies reduce costs
Economic order quantity
The optimum or least cost quantity of stock re-order taking into account delivery costs and stock holding costs
Refer to tb for diagram
Re-order quantity
Number of units ordered each time
Typical inventory control chart and its features
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-Buffer inventories
-Maximum inventory level
-Re-order quantity
-Lead time
-Re-order level
Buffer inventory
Minimum inventory needed for continuous production to be possible
Lead time
The time between ordering new supplies and their delivery
Re-order level
The level of inventory that triggers a new order to be sent to suppliers
Supply chain
The network of business and activities involved in creating a product for sale, starting with delivery of raw materials and finishing with delivery of finished products
Supply chain management
Handling the entire production flow of a product to minimise cost and improve customer service
Benefits of supply chain management
-Improves customer service
-Reduces operating costs
-Improves profitability
Just in time ( JIT )
Aims to avoid holding inventories and requires supplies to arrive when they are needed in production
Just in case ( JIC )
Aims to reduce the risk of running out of inventory by holding high buffer inventory
Benefits and limitations of JIT
-Opportunity cost of inventory is reduced
-Costs of storage and inventory is reduced
-Less chance of inventories becoming outdated or obsolete
-Leads to quicker response times to in change consumer demand
-Failure to receive supplies in time, will lead to production delay
-Delivery costs for small deliveries are high
-Order administration costs may rise
-There could be a reduction in bulk discounts
Benefits and limitations of JIC
-Little chance of running out of inventory
-Less need for accurate sales forecasting than with JIT
-Economies of scale
-High capital cost of finance invested in inventories
- High storage and other costs with inventory holding
-Inventories could lose value if fashions change while being held
Conditions for JIT to be effective
-Excellent supplier relationship
-Production employees must be multi-skilled and flexible
-Equipment and machinery must be flexible
-Accurate demand forecast
-IT equipment is needed for JIT
-Excellent employee-employer relationship
-Quality is everyones priority
