Section K: Item Inventory Management Flashcards
inventory control
inventory control as The activities and techniques of maintaining the desired levels of items, whether raw materials, work in process, or finished products.
Traceability
Traceability : 1) The attribute allowing the ongoing location of a shipment to be determined. 2) The registering and tracking of parts, processes, and materials used in production, by lot or serial number.
Lot control
Lot control : A set of procedures (e.g., assigning unique batch numbers and tracking each batch) used to maintain lot integrity from raw materials from the supplier through manufacturing to consumers.
When is the control point for inventory levels?
The control point for inventory levels per location is the reorder point.
ABC classification
ABC analysis
ABC classification (ABC analysis)
The classification of a group of items in decreasing order of annual dollar volume (price multiplied by projected volume) or other criteria.
This array is then split into three classes, called A, B, and C.
The A group usually represents 10 percent to 20 percent by number of items and 50 percent to 70 percent by projected dollar volume.
The next grouping, B, usually represents about 20 percent of the items and about 20 percent of the dollar volume.
The C class contains 60 percent to 70 percent of the items and represents about 10 percent to 30 percent of the dollar volume.
The ABC principle states that effort and money can be saved through applying looser controls to the low-dollar-volume class items than to the high-dollar-volume class items. The ABC principle is applicable to inventories, purchasing, and sales.
Pareto’s law
Pareto’s law
A concept developed by Vilfredo Pareto, an Italian economist, that states that a small percentage of a group accounts for the largest fraction of its impact or value.
In an ABC classification, for example, 20 percent of the inventory items may constitute 80 percent of the inventory value.
ABC inventory control
When applied to inventories, the ABC classification can be called ABC inventory control.
ABC inventory control is concerned with determining the relative importance of inventory and the level of control that is required.
To determine relative importance, organizations often select annual dollar usage. How is that calcuated?
annual dollar usage = the number of units sold annually multiplied by their cost
What are the steps in the ABC inventory control process?
The steps in the ABC inventory control process:
- Multiply the annual unit usage by its unit cost to find the annual dollar usage per product or product family.
- Rank the products by their annual dollar usage from highest to lowest.
- Calculate the cumulative percentage of total items.
- Calculate the cumulative percentage of annual dollar usage.
- Assign A, B, and C classifications based on the items’ cumulative percentage of dollar usage, with A items within about 50 percent to 70 percent of cumulative value, B at about 20 percent more of the cumulative value, and C at the remainder.
Are A items more expensive than B & C items?
It is important to note, however, that it is not necessarily the case that A items are expensive, and C items are cheap. The classification is used to identify the cumulative value of the items used.
Lot size (aka order quantity)
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 process.
Why are Order quantity systems used?
Order quantity systems are used to determine how much to order at a given time to balance various inventory costs, while providing the desired level of customer service.
Lot-Size Decision Rules
Lot-for-Lot
lot-for-lot
a lot-sizing technique that generates planned orders in quantities equal to the net requirements in each period.
point of sale (POS)
point of sale (POS)
the relief of inventory and computation of sales data at the time and place of sale, generally through the use of bar coding or magnetic media and equipment.
Where is lot-to-lot ordering beneficial?
Lot-for-lot prevents inventory build-ups because inventory is always replenished to the exact level desired, no more and no less. Lot-for-lot is frequently used to reorder perishable SKUs, level A items in ABC inventory control, and items that consume significant warehouse space due to their size or handling requirements.
fixed order quantity terms:
Fixed order quantity
A lot-sizing technique in MRP or inventory management that will always cause planned or actual orders to be generated for a predetermined fixed quantity, or multiples thereof, if net requirements for the period exceed the fixed order quantity.
Reorder quantity
1) In a fixed reorder quantity system of inventory control, the fixed quantity that should be ordered each time the available stock (on-hand plus on-order) falls to or below the reorder point.
2) In a variable reorder quantity system, the amount ordered from time period to time period varies.
min-max system
One variation of fixed order quantity is a min-max system
A type of order point replenishment system where the minimum (min) is the order point, and the maximum (max) is the “order up to” inventory level.
The order quantity is variable and is the result of the max minus available and on-order inventory. An order is recommended when the sum of the available and on-order inventory is at or below the min.
period order quantity
period order quantity
A lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods (e.g., weeks into the future).
The number of periods to order is variable, each order size equalizing the holding costs and the ordering costs for the interval.
When is period order quantity used?
period order quantity is often used for SKUs that are low in relative value (C items in ABC ordering systems).
economic order quantity (EOQ)
economic order quantity (EOQ)
A type of fixed order quantity model that determines the amount of an item to be purchased or manufactured at one time.
The intent is to minimize the combined costs of acquiring and carrying inventory.
EOQ Assumptions
EOQ makes certain simplifying assumptions that, if true or close to being true, mean that the order quantity will be the lowest total cost or very close to it.
- Demand is known and relatively constant.
- Items are purchased or made in batches or lots.
- Ordering costs and carrying costs are known and the curves are stable.
- Replacement occurs all at once. (The full reorder is available at receipt.)
