INVENTORY MANAGEMENT Flashcards

1
Q

Describe supply chain management.

A

sharing of key information from point of sale to:

final consumer and back to
manufacturer
manufacturer’s suppliers
supplier’s suppliers

sharing of sales forecasts will reduce all firms need for inventories, thereby decreasing inventory ordering and carrying costs.

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2
Q

What is economic order quantity?

A

inventory quantity to be ordered that minimizes the sum of ordering and carrying costs.

Ordering size increase - carrying costs increase bu ordering costs decrease

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3
Q

What is materials requirements planning?

A

computerized system of manufacturing finished goods based on forecasts

Steps:

  1. demand forecasts
  2. bills of materials from demand forecasts
  3. master production schedules
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4
Q

Disadvantage of MRP materials requirements planning

A

It is a push through system.

Production is done according to master schedule even if not yet need

Danger of overproducing at various stages of production - production slowdowns and unreliable demand forecasts

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5
Q

MRP II

A

Automated closed-loop system

Steps:

  1. Starts with production planning
  2. Develop master schedule
  3. Materials requirements
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6
Q

What is Just In Time Production?

A

Demand-pull system

Each finished good component is produced only when needed by the next production stage

Production is driven by demand

Steps:

A customer order is received triggering the need for a finished good and works its way back to the beginning of the production process

Reduces inventories to minimal level

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7
Q

What should be done to accomplish JIT?

A
  1. Reduce production cycle time and set up time
  2. Production flexibility - utilize workers and machinery at optimum capacity
  3. Solve production problems immediately to reduce scrap and returns.
  4. Simplify production activities -eliminate non-value-added activities
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8
Q

Advantages of JIT

A

lower investment in inventories and in storage space

lower carrying and handling costs

reduced risk of defective and obsolete inventory

reduced manufacturing costs

allows the use of BACKFLUSH COSTING-all manufacturing costs become cost of goods sold. no more LIFO or FIFO

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9
Q

Describe ERP - Enterprise resource planning system

A

Enterprise-wide computerized information system

Connects all functional areas within the org.

Provides effective coordination among all departments

Ability to implement supply chain management by connecting electronically to suppliers and customers

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10
Q

EOQ objective?

A

Avoid stockouts but maintain safety stock

Safety stock decrease stockout costs but increase carrying costs

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11
Q

What are carrying costs for inventory?

A
Storage
Interest
Spoilage
Insurance
Property taxes
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12
Q

Examples of stockout costs

A

Profit on lost sales
Customer ill will
Idle equipment
Work stoppages

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13
Q

Describe inventory management

A

Effective inventory management starts with:

Effective sales forecasts
Coordination of purchasing and production

Goals:

Adequate inventories to sustain operations

Minimize inventory costs including carrying costs, ordering and receiving costs, and stockout costs

Different policies of inventory management:

  1. Production pattern based - level and seasonal
  2. Inventory and Inflation policy
  3. Supply chain management
  4. Economic order quantity, reorder points, and safety stock policy
  5. Materials Resource Planning and MRP II
  6. Just in Time Purchasing & production
  7. ERP Systems
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14
Q

What is level production?

A

Produce at consistent level based on annual forecast

Results in most efficient use of labor and facilities throughout the year

Disadvantage -

Results in inventory build-ups during slow sales periods

Increased holding costs during slow periods

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15
Q

What is seasonal production?

A

Production based on demand

Increased production during peak sales periods

Decreased production during slow sales periods

Disadvantage -

Additional operating costs for overtime and maintenance

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16
Q

Describe the inventory and inflation policy

A

Inventory losses can be caused by price fluctuations of materials

Can be controlled by:

holding low levels of inventory
hedging with a futures contract to offset inventory losses

17
Q

Elements of EOQ

A

cost of placing an order
annual/periodic demand in units
carrying costs per unit

**ALL ASSUMED CONSTANT

18
Q

In JIT, describe the cost changes that will occur if successful

A

Stockout costs will increase and carrying costs will decrease

Because smaller quantities are received for each material - there is a danger of stockouts

19
Q

Stockout cost for safety stock formula

A

= Safety stock in units X carrying cost per unit X no. of orders

= total stockout cost