Lecture 3: Inventory management Flashcards
Name the four different types of inventory?
- Raw materials
- Work in rogress
- Maintenace/repair/operating supply
- Finished goods
What are advantages of having inventory?
- To decouple parts of the production process
- Provide stock of good that will provide a selection for customers
- Advantage of quantity discounts and economies of scale
- Buffer against variations in lead time
- Hedge against risk
What is cycle inventory?
These are products waiting for more similar products to be processed together
What is seasonal inventory?
Inventory built up to smooth production for peak of seasonal demand
What is make-to-stock?
Finished goods are the central inventory
What is assemble-to-order?
Product modules (parts) are central inventory
What are the disadvantages of keeping inventories?
- Higher costs
- Difficult to control
- Hides production problems
- Risk of demand shift (obsolescence)
- Loss of product
What is make-to-order
Raw materials are the central inventory, no final products in stock
What is dollar-volume?
annual demand *unit cost. This value is often used for ABC-classification
What is cycle counting?
Inventory is physically conuted on a regular basis using the ABC classifocation.
A = products counted most often (15% of items,70-80% of sales)
B = 30% of items, 15-25% of sales
C = 55% of items, 0-5% of sales
What is Dollar-volume?
This is the annual demand times the unit cost. Its often used for ABC-classifications
What are holding costs?
These are costs associated with the storage of products. Represented as H
What are ordering costs?
These are all costs associated with placing an order. Represented with S in the EOQ model
What are setup costs?
Costs to prepare machine/process for manufacturing. Represented as S in POQ model
What are the assumptions of the EOQ model?
- Known and constant demand and lead time
- Instant and complete receipt of material
- No quantity discounts
- Only ordering and holding costs
- No stockouts
What is lead time?
This is the time between placing an order and receiving it.
What is a reorder point?
This is the inventory level at which a new order has to be placed.
What is a fixed period model?
Orders are placed at fixed intervals. There is no continuous inventory count. Inventory is brought up to target amount. The ordered amount will vary in this case
What is a cycle service level?
This is equal to 1 - probability of stockout in a cycle
What is a cycle?
A cycle is the period between two consecutive orders.
