Invnetory Management Flashcards
What is inventory control?
The systematic regulation of inventory levels
Why is inventory control important (high inventory)?
Too high inventory levels incur additional costs and profits will be reduced.
Why is inventory control important (low inventory)?
Too low inventory levels are insufficient to satisfy customers and profit will be reduced
What does inventory levels depend on?
Average level of daily sales
Storage and security costs
Lead time between ordering goods and their delivery
What may inventories be?
Raw materials, WIP, finished goods, goods for resale for use in production processes
What are the reasons for holding inventory?
Take advantage of quantity discounts
Meet demand
Reduce ordering costs
What are inventory costs?
Holding costs
Re-order costs
Shortage costs
Systems costs
What are holding costs?
Insurance
Obsolescence
Warehousing
What are re-order costs?
Transport costs
Administrative expenses
Batch set-up costs
What are shortage costs?
Production stoppages
Stock-out costs for finished goods
Emergency re-order costs
What are systems costs?
People and computers
What is the economic order quantity?
The optimal order quantity that minimises the total costs which are relevant to ordering and holding inventory
Assumptions of EOQ?
Purchase price per unit is constant
Constant demand
No risk of stock-outs
Holding cost depends on average level of inventory
What is the EOQ model based on?
The assumption that holding costs vary with the average inventory level
If a warehouse is rented on a long-term contract?
It needs to be large enough to hold the maximum level of stock, rather than the average.
