Business Processes & Risks Flashcards
(36 cards)
One purpose of inventory control is to
Determine the optimal level of inventory necessary to minimize costs.
Include rent, insurance, taxes, security, depreciation, and opportunity cost.
The carrying costs of inventory
Are the fixed costs of placing an order with a vendor and receiving the goods, independent of the number of units ordered.
Ordering costs
The basic formula of the economic order quantity (EOQ) model is
EOQ = Square root of (2aD divided by k)
if
a = variable cost per order (or production setup)
D = Periodic demand in units
k = unit periodic carrying cost
The limitations of the EOQ model are its restrictive assumptions, which are
1) The three variables in the formula remain constant throughout the period.
2) Full replenishment occurs instantly when the last items is used, stock-out costs are zero, and no safety stock is held.
Divides inventory items into three groups.
The ABC system
Consists of high-monetary-value items, which account for a small portion (perhaps 10%) of the total inventory usage.
Group A
Consists of medium-monetary-value items, which may account for perhaps 20% of the total inventory items.
Group B
Consists of low-monetary-value items, which account for the remaining 70% f sales or usage.
Group C
The ABC system permits managerial control over inventory to be exercised in
The most cost-effective manner by putting more attention on the groups with higher value items.
Limits output to the amount required (the demand) by the next operation in the production process. Is a pull system.
Just-in-time (JIT) model
Just-in-time has the following qualities.
1) Reductions in inventory result in less money invested in idle assets; reduction of storage space requirements; and lower inventory taxes, pilferage, and obsolescence risks.
2) Reduces carrying costs while increasing the risk of stock-out costs.
3) The lower inventory in a JIT system eliminates the need for some internal controls.
4) The dependability of suppliers is crucial.
Is an integrated computer-based system designed to plan and control materials used in production.
Materials requirements planning (MRP)
The MRP system:
Consults the bill of materials (BOM), a record of which (and how many) subassemblies go in to the finished product. The system then generates a complete list of every part and component needed.
Expands the scope of MRP to integrate all facets of a manufacturing business, including production, sales, inventories, schedules, and cash flows.
Manufacturing resource planning (MRP-II)
System involves
1) Designing products using a computer-aided design (CAD),
2) Testing the design using computer-aided engineering (CAE),
3) Manufacturing products using computer-aided manufacturing (CAM), and
4) Integrating all components with a computerized information system
Computer-integrated manufacturing (CIM)
Is the communication of electronic documents directly from a computer in one organization to a computer in another organization.
Electronic data interchange (EDI)
Advantages of Electronic data interchange (EDI) are
1) Reduction of clerical errors,
2) Speed of transactions, and
3) Elimination of repetitive clerical tasks.
4) Eliminates document preparation, processing, and mailing costs
Risks of EDI include:
1) Security of information and
2) Loss of data
Are private mailbox-type services in which the sender’s and receiver’s computers are never directly connected to each other.
Third-party value-added networks (VANs)
Because of the third-party buffer, the VAN users are:
Not required to conform to the same standards, conventions, and protocols.
Is a service provided by financial institutions worldwide that is based on EDI technology.
Electronic funds transfer (EFT)
Electronic funds transfer (EFT) consist of:
1) EFT transaction costs are lower than for manual systems.
2) the most important application of EFT is check collection.
Is the purchase and sale of goods and services by electronic means.
Electronic commerce (e-commerce)
