Inventory management: Basics Flashcards
What is inventory management?
Responsible for all aspects of stock control
What are consumables?
Materials that are essential for the production process, but do not contribute to the creation of the finished product
What are cyclical stocks? Give one example
Guarantee the normal functioning of the company production process
Ex. Car companies: perform well during periods of economic growth, but don’t stay as resilient during economic downturns
What are seasonal stocks? Give an example
Performance and stock prices are influenced by seasonal factor or patterns
Example: Holiday themed retailers: increased sales during holiday seasons
What is customer service level (CSL)?
The probability that products will be available to meet customer demand.
- If the service level is 90%, it means that products will be available 90% of the time
What can be negative aspects of inventory?
- Ties up capital
- Icurs storage costs
- Risk of obsolescence
- Potential for damage
- Administrative and insurance costs
What are the costs generated by stocks?
Holding costs: capital costs, warehouse costs, administrative costs, obsolence costs
Order costs: Administrative costs, Transportations costs
What is the ABC-approach?
- A method used to prioritize inventory items based on their significance to the business in terms of value or usage
- The aim is to optimize the processes that generate value for the end customer, while minimizing the resources used for activities that do not generate value
A-items: high value items
- these represents a small percentage (20%) of total inventory but has the highest costs, up to 80% of the total holding cost
B-items: Moderate value items
- In the middle range
- Representes about 30% of the total inventory, and contribute to additional 15% of total holding costs
C-items:Low value items
- Represents about 50% of the total inventory and contribute to 5% of total houlding costs
Draw the graph for ABC-approach
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