Managing Inventory Flashcards
Anticipation inventory
Inventory that provides for expected supply or demand
Buffer Inventory (Safety stock), SS
Stock that cushions against unexpected fluctuations in supply, demand or lead times
(z) x (StDev_DLt)
ROP - EOQ
Continuous Review Model Fixed Qty Model
A system where stock on hand is continuously monitored and updated once it reaches a certain threshold. Time allocated to review is not predetermined. ROP is the threshold. ROP dictates the ordering of inventory. ROP: The amount of inventory needed to cover demand during lead time
Cycle stock Lot size inventory
Inventory produced in quantities that provides for expected demand; it takes advantage of cost-savings tied to quantity discounts; it is produced to allow for more economic production and purchasing.
Days of Inventory
360 / inventory turnover
Inventory turnover
COGS / average inventory Average inventory is valued at cost
Decoupling inventory
Inventory serving as a buffer between interdependent operations; reduces the need for production to be synchronized and protects against fluctuating production rates and breakdowns. It’s also meant to reduce lead times if products are not yet ready for deployment.
In-stock rate
The probability that demand can be satisfied with the available inventory during a given inventory cycle AKA, critical ratio
Economic Order Quantity EOQ
The amount of inventory that should be ordered to minimize the sum of (ordering costs + inventory holding costs). This model drives the amount of inventory ordered under the continuous and periodic review models.
Finished Goods (FG)
Completed goods available for sale; can include goods purchased for resale
Goods for resale
Finished goods returned by the customer
Inventory carrying cost Holding cost
The cost per unit for holding inventory; costs related to financing inventory; storage costs; rent, labor, utilities, taxes and insurance. As a percentage of the items in inventory (Review in reading)
Maintenance, repair and operations inventory MRO inventory
Supplies required for production and facility maintenance
Single-Period News Vendor model
Applies to products with limited salable lives; they cannot be carried over for sale in subsequent periods. Inventory model determining the optimal inventory level to minimize the sum of (expected Cu + expected Co)
Obsolescence costs
The decrease of an item’s value over time.
Ordering cost
Fixed costs tied to replacing inventory: labor and transportation costs; per order costs NOT per unit costs.
Order up to level
Target amount of inventory to order in a periodic review model.
Periodic review model Fixed interval model
A system where after a predetermined time period, managers will monitor and update inventory. The manager or person checking inventory has ordering discretion.
Pipeline inventory In-transit inventory
Stock required for when products are processed or rendered; stock required to fill the gaps created by the movement of goods
Raw materials RM
Unprocessed inputs
Reorder Point ROP
The inventory threshold that triggers replenishment. (Demand rate) x (lead time) D(LT) = D x LT Demand during lead time; the amount of inventory needed to cover demand during lead time
(expected demand during lead time) + (Safety Stock)
[E(d) x E(Lt)] + SS
Reuse inventory
Items collected or recovered for reutilization
Shrinkage costs
The cost of items being lost or becoming unsellable
Speculation inventory
Inventory accumulated in anticipation of price fluctuations
Spare parts inventory
Items used for repairs or replacement
Work in process WIP
Products in between the RM stage and FM stage; released for processing, value added products, and semi-finished goods.
Stock-out Rate
The chance inventory won’t meet demand
1 - critical ratio
