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#purchasing&logistic > Logistics L3 > Flashcards

Logistics L3 Flashcards

1
Q

Inventory

A

A stock or store of goods

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2
Q

Inventory Models

A

Independent demand
● Finished goods, items that are ready to be sold
● Uncertain
○ Example: a computer

Dependent demand
● Components of finished products
● Certain
○ Example: parts that make up the computer

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3
Q

5 types of Inventories

A
  1. Raw materials purchased parts
  2. Partially completed goods called: work in progress
  3. Finished-goods inventories (manufacturing firms, merchandise, retail stores)
  4. Replacement parts, tools & supplies
  5. Goods-in-transit to warehouses or customers
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4
Q

8 functions of inventory

A
  1. To meet anticipated demand
  2. To smooth production requirement
  3. To decouple operations
  4. To protect against stock-outs
  5. To take advantage of order cycles
  6. To help hedge against price increases
  7. To permit operations
  8. To take advantage of quantity discount
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5
Q

Objective of Inventory Control

A

To achieve satisfactory levels of customer service, while keeping inventory costs within reasonable bounds
• Level of customer service
• Costs of ordering and carrying inventory

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6
Q

Inventory turnover

A

is the ratio of “average cost of goods sold” to

average inventory investment.

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7
Q

Cost of goods sold

direct costs attributable to the production of good sold by a company

A

Includes:
◆ Cost of materials used in creating the good
◆ Direct labor costs used to produce the good

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8
Q

cogs Calculation

A
  1. Beginning inventory costs (begin of the year)
    • additional inventory costs (inventory purchased during the year)
    • ending inventory (end of the year)
  4. COGS
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9
Q

Calculate Cost of Goods Sold (COGS)

Revenues - COGS = Gross Profit

A

Gross Profit Margin = Gross Profit : Revenues

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10
Q

effective inventory management

A 
● System to keep track of inventory 
● A reliable forecast of demand 
● Knowledge of lead times 
● Reasonable estimates of Holding costs, Ordering costs, Shortage costs 
● A classification system
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11
Q

4 inventory counting systems

A

Periodic system ➔ Physical count of items made at periodic intervals

Perpetual inventory system ➔ System that keeps track of removals from inventory continuously, thus monitoring current levels of each item

Two-bin system ➔ Two containers of inventory; reorder when the first is empty

Universal bar code ➔ Bar code printed on a label that has information about the item to which it is attached

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12
Q

periodic system

A

physical count

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13
Q

perpetual inventory system

A

keep tract of removals => monitor current level

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14
Q

two-bin system

A

2 containers, reorder when 1st empty

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15
Q

universal bar code

A

printed bar code on an item has information on it

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16
Q

key inventory terms

A

Lead time ➔ Time interval between ordering and receiving the order

Holding (carrying) costs ➔ Costs to carry an item in inventory for a length of time, usually a year

Ordering costs ➔ Costs of ordering and receiving inventory

Shortage costs ➔ Costs when demand exceeds supply

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17
Q

lead time

A

time interval between ordering and receiving

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18
Q

holding cost

A

cost to carry an item in inventory

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19
Q

ordering cost

A

cost of ordering and receiving

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20
Q

shortage cost

A

cost when demand exceeds supply

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21
Q

ABC classification system

A

Classifying inventory according to some measure of importance and allocating control efforts accordingly ◆ A - very important
◆ B - moderate important
◆ C - least important

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22
Q

Three Economic Order Quantity (EOQ) Models

A
  1. Economic Order Quantity (EOQ) model
  2. Economic Production Quantity (EPQ) model
  3. Quantity discount model
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23
Q

Economic order quantity (EOQ) model

A

● minimizes total annual cost

● minimize inventory costs and the cash tied up in inventory

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24
Q

Assumption of EOQ model

A
  1. Only one product is involved
  2. Annual demand requirements known
  3. Demand is even throughout the year
  4. Lead time does not vary
  5. Each order is received in a single delivery (completely) and immediately after ordering
  6. no quantity discounts
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25
Q

Economic Production Quantity

EPQ) model (an extension of EOQ model

A
  1. Production done in batches or lots
  2. Capacity to produce a part exceeds the part’s
    usage or demand rate
  3. Assumptions of EPQ are similar to EOQ except
    that in EPQ the orders are received incrementally
    during production
26
Q

Assumptions Economic Production Quantity

(EPQ) model

A
  1. Only one item is involved
  2. Annual demand is known
  3. Usage rate is constant
  4. Usage occurs continually
  5. Production rate is constant
  6. Lead time does not vary
  7. No quantity discounts
27
Q

When to Reorder

A

Re-order Point - When the quantity on hand of an
item drops to this amount, the item is reordered
Safety Stock - Stock that is held in excess of expected
demand due to variable demand rate and/or lead
time.
Service Level - Probability that demand will not
exceed supply during lead time.

28
Q

Determinants of the Reorder Point

A

The rate of demand
The lead time
Demand and/or lead time variability
Stock-out risk (safety stock)

29
Q

Fixed-Order-Interval Model

Definition : Stock levels are reviewed regularly at fixed intervals (not continuously) and when it falls below a certain level, an order to replenish it to required level is placed

A

Orders are placed at fixed time intervals
Order quantity for next interval?
Suppliers might encourage fixed intervals
May require only periodic checks of inventory levels
Risk of stockout
Fill rate – the percentage of demand filled by the stock on hand

30
Q

Fixed-Interval Inventory Model Benefits

A

Tight control of inventory items
Items from same supplier may yield savings in:
• Ordering
• Packing
• Shipping costs
May be practical when inventories cannot be closely
monitored

31
Q

Fixed-Interval Disadvantages

A

Requires a larger safety stock
Increases carrying cost
Costs of periodic reviews

32
Q

Single period model

for ordering of perishables and other items with limited useful lives

A

1 selling season & only 1 purchase opportunity
Purchase must be done in advance

ex: Bakery or short-life dairy products

33
Q

Single period model

Shortage costs ➔ The unrealized profits per unit

Excess costs ➔ Difference between purchase cost and salvage value of items left over at the end of a period

A

Continuous stocking levels
● Identifies optimal stocking levels
● Optimal stocking level balances unit shortage and excess cost

Discrete stocking levels
● Service levels are discrete rather than continuous
● Desires service level is equaled or exceeded

34
Q

Consequences of too much inventory

A

Tends to hide problems
Easier to live with problems than to eliminate them
Costly to maintain

35
Q

Wise strategy

A
  • Reduce lot sizes

* Reduce safety stock

36
Q

SIX Inventory Types

A
  1. Cycle stock
  2. Safety stock
  3. Anticipation inventory
  4. Hedge inventory
  5. Transportation inventory
  6. Smoothing inventory
37
Q

Cycle stock

A

Components or products that are received in bulk by a downstream partner, gradually used up and then replenished again in bulk by an upstream partner

38
Q

Safety stock

A

Extra inventory that a company holds to protect itself against uncertainties in either demand or replenishment time

39
Q

Anticipation inventory

A

Inventory that is held in anticipation of customer demand

40
Q

Hedge inventory

A

A form of inventory buildup to cover some events that may happen

41
Q

Transportation inventory

A

Inventory that is moving from one link in the supply chain to another

42
Q

Smoothing inventory

A

Inventory that is used to smooth out differences between upstream production levels and downstream demand

43
Q

Inventory drivers

A

Business conditions that force companies to hold inventory

44
Q

Uncertainty in supply or demand

A

Safety stock, hedge inventory

45
Q

Mismatch between downstream partner’s demand and the most efficient production or shipment volumes for an upstream partner

A

Cycle stock

46
Q

Mismatch between downstream demand levels and upstream production capacity

A

Smoothing inventory

47
Q

Mismatch between timing of customer demand and supply chain lead times

A

Anticipation inventory, transportation inventory

48
Q

Independent demand inventory

A

Inventory items whose demand levels are beyond a company’s complete control
◆ Example: kitchen table - need 500 tables five weeks from now

49
Q

Dependent demand inventory

A

Inventory items whose demand levels are tied directly to a company’s planned production of another item
◆ Example: kitchen table legs - need 4 per table or 2000 legs, calculation of dependent demand

50
Q

inventory control : Periodic Review System

A

used to manage independent demand inventory

inventory level for an item is checked at regular intervals and restocked to some predetermined level

51
Q

inventory control: Continuous review system

A

used to manage independent demand inventory where the inventory level for an item is constantly monitored and when the reorder point is reached, an order is released

52
Q

Periodic Review System

A 
Calculating the order quantity (Q)
Q = R-I
where
R = restocking level
I = inventory level at the time of review
53
Q

Continuous Review System

A 
When the demand rate and lead time are constant:
Reorder point (R)= demand (d) x lead time (L)
(R = d x L)
54
Q

CRS - key features

A

● Inventory levels are monitored constantly and a replenishment order is issued only when the reorder point is reached
● The size of a replenishment order is typically based on the trade-off between holding costs and ordering costs
● The reorder point is based on both demand and supply considerations, as well on how much safety stock managers want to hold

55
Q

CRS - assumptions

A

Constant demand and lead time
Holding and Ordering cost known and fixed
Price of each unit is fixed.

56
Q

Bullwhip effect (or whiplash effect)

A

Extreme change in supply chain generated by small change of its “downstream” customer

57
Q

Inventory positioning

A

Cost and value increases and flexibility decreases down the supply chain

58
Q

Transportation, packaging, material handling

factors in choosing appropriate supplier and distribution process?

A

Physical size and quantity
how it is packaged
equipment needed
disposal of packaging

59
Q

What contributes to the Bullwhip Effect ?

A
  1. Disorganization between each supply chain link
  2. Lack of communication
  3. Free returns policies
  4. Order batching (companies may order
    weekly/monthly)
  5. Price variations (upsetting regular buying
    patterns)
  6. Demand information (relying on past demand does
    not take into account demand-fluctuations)
60
Q

How to minimize the Bullwhip Effect

A
  1. Improve your SC- processes => reduction of
    delivery lead times and pipeline inventory
  2. The re-order point and desired inventory levels
    are a direct function of delivery lead time

Conclusion: a reduction of lead time -> a reduction
of total amount of inventory in process

#purchasing&logistic (6 decks)

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