Module 4: Inventory and Warehouse Management Flashcards
Inventory Management
the branch of business management concerned with planning and controlling inventories
Inventory Planning
the activities and techniques of determining the desired levels of items, whether raw materials, WIP, or finished products including order quantities and safety stock levels
Inventory Control
the activities and techniques of maintaining the desired levels of items, whether raw materials, WIP, or finished products
Warehousing
activities related to receving, storing, and shipping materials to and from production or distribution locations
Materials Handling
movement and storage of goods inside the DC. this represents a capital cost and is balanced against the operating costs of the facility. Can be clasigied as receiving, in-storage transfer or handling, and shipping. Material handling may be manual, equipment assisted, or automated
Inventory
those stocks or items used to support production (raw materials and WIP items), supporting activities (maintenance, repair, and operating suppliers), and customer service (finished goods and spare parts)
Work in process (WIP)
a good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory. Many accounting systems also include the value of semifinished stock and components in this category
Inventory Forms at DC’s are:
Packaged goods awaiting orders and transportation to a distributor, retailer, or consumer; as well as parts that can be reordered by customers and consumers
Maintenance, Repair, and Operating Suppliers (MRO)
items used in support of general operations and maintenance such as maintenance suppliers, spare parts, and consumables used in the manufacturing process and supporting operations
Shrinkage
reductions of actual quantities of items in stock, in process, or in transit…. caused by scrap, theft, deterioration, evaporation, etc.
Return On Assets Ration (ROA)
Net Income for the previous year / Total Assets
Stockout
a lack of materials, components, or finished goods that are needed
Operating Inventory
what is needed to satisfy forecast demand (factoring in practical issues such as Economic order quantites
Inventory Can be classified by amount and time into:
Operating Inventory, Excess Inventory, Surplus Inventory, Inactive Inventory
Inactive Inventory
wasted assets that will never produce revenue and place a drag on a business’s profitability
Reasons to maintain higher inventory levels
Unreliable suppliers, lack of confidence in planners forecasting ability, demand characteristics that make accurate forecasting difficult, production problems (which include interruptions in production, missed production goals, porr quality work that requires correction or is rejected by customers)
Value-added Time
Reflects the investment of resources that will result in sales
Non-value-added time
inventory that sits and waits
lot size
the amount of a particular item that is ordered from the plant or a supplier or issued as a standard quantity to the production procss
cycle stock
one of the 2 main conceptual components of any item inventory, the cycle stock is the most active component. the cycle sotck delpelts gradyally as customer orders are received and is replenished cylically when supplier orders are received
safety stock
a cushion of protection against uncertainty in the demand or in the replenoshment lead time
pipeline inventory
inventory in the trainsporation networks and distribution system including the flow through intermediate stocking points.
anticipation inventorys
additional inventory above basic pipeline stock to cover projected trends of increasing sale,s planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations
3 issues that challenge alighing supply and demand
Geographical Specialization
Decoupling Supply and Demand
Seasonal fluctuations in supply and demand
Decoupling
focuses on the use of inventory as a buffer for processes in which demand may fluctuate at different stages
Creates independence btw supply and use of material
buffer
a quantity of materials awaiting further processing. can refer to raw materials, semi finished stores or hold points, or a work backlog that is purposely maintained behind a work center.
economy of scale
a phenomenon whereby larger columes of producti9on reduce uinit cost by distributing fixed costs over a larger quantity
hedge inventory
a form of inventory buildup to buffer against some event that may not happen. involves speculation related to potential labor strikes, prince aincreases, unsettled governments, and events that could severly impair a companys stratefic initiatives. high risk & approval required
inventory costs
the costs associated with ordering and holding inventory. Acquisition costs, Carrying Costs, & Stockout Costs
Acquisition costs
costs associated with acquiring inventory include unit costs of materials, cost for necessary process (ordering setup, handling)
how are acquisition costs created?
upstream when materials are purchased from suppliers and down stream when goods are produced to sell or provide to customers
Unit Costs
total labor, material, and overhead cost for one unit of production
Ordering cost
the costs that increase as the number of orders placed increases. It includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable
handling costs
the cost involved in the movement of material. in some cases, the handling cost depends on the size of the inventory
setup costs
costs such as scrap costs, calibration costs, downtime costs, and lost sales associated with preparing the resource for the next product. may also be referred to as changeover or turnaround costs.
carrying costs
the cost of holding inventory, usually defined as a % of the dollar value of inventory per unit of time (generally one year). Depends mainly on the cost of capital invested as well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage, and space occupied. Costs vary from 10-15% annually depending on the industry.
Capital Costs
includes both the cost of financing and opportunity costs.
opportunity cost
reflect the difference in potential gains bw using capita to purchase inventory and using it for another purpose (purchasing assets, investing, retiring debt_
Calculation for ROI
ROI = ((Gain-Cost)/Cost ) X 100
stockout costs
may include lost sales, backorder cost, expediting, and additional manufacturing and purchasing costs
backorder
an unfilled customer order or commitment. this is an immediate (or past due) demand against an item whose inventory is insufficient to satisfy demand
expedite
to rush or chase production or PO’s that are needed in less than normal lead time; to take extraordinary action bc of an increase in relative priority
valuation
the technique of determining worth, typically of inventory. valuation of inventories may be expressed in standard dollars, replacement dollars, current avg dollars, or last purchase price dollars
FIFO
First In First Out. The accounting assumption is that the oldest inventory is the first to be used, but there is no necessary relationship with the actual physical movement of specific items.
LIFO
Last in first out. The accounting assumption is that the most recently received is the first to be used or sold for costing purposes, but there is no necessary relationship with the actual physical movement of specific items.
Average Cost
the current cost and quantity of inventory is combined with the cost and quantity of the most recent inventory purchase to create an average. the average is usually weighted to reflect any unique characteristics of the last order. Requires Real-time Knowledge of inventory quantity. Used when majority of organizations inventory either has high volatility in market prices or the inventory is stored in bulk rather than being discrete items
Standard Cost
an accepted norm of value for the planning period is assigned to items based on the costs. Once actual costs are known, the differences are recorded as variances from standard
Actual Cost
Sku value will vary by lot, which means that some portion of the sku group will have higher value than another portion. This is commonly used when acquisition costs for an item can vary greatly and suddenly.
