Ch. 12 Flashcards
What are the different types of inventory?
Raw Material, Work in process (WIP), maintenance/repair/operating (MRO), Finished goods
What type of inventory is material that is usually purchased, but has yet to enter the manufacturing process?
Raw material
Determines the relative value of a group of inventory items based on a user-specified valuation criterion. “ABC” refers to the rankings you assign your items as a result of this analysis, where “A” items are ranked higher than “B” items, and so on.
ABC analysis
In ABC analysis, what items are the most tightly controlled?
A items
Items are counted and records updated on a periodic basis, used with ABC analysis
Cycle counting
ABC analysis divides on-hand inventory into three classes, what is the classification generally based upon?
Class A- High annual dollar volume
Class B- Medium “ “ “
Class C- Low “ “ “
What are the two types of inventory demand?
Independent and Dependent
The demand for the finished product or service, can be forcasted, but hard to be certain
Independent Demand
What are the two most basic inventory questions answered by the typical inventory model?
Timing and quantity of orders
The optimal batch size for an order that minimizes the total period cost, including cost of ordering (setup cost), inventory holding cost, and cost of materials procured.
Economic Order Quantity
What is the primary purpose or objective of the basic economic order quantity model Q* = Square root of 2DS/H?
The minimize total inventory costs. By minimizing the sum of setup (or ordering) and holding costs, total costs are
minimized
A reduced price for an item when purchased in bulk
Quantity Discount
Used when inventory builds up over a period of time after an order is placed, used when units are produced and sold simultaneously
Production Order Quantity Model
The time between placing and order and receiving it.
Lead time
What is the purpose of safety stock?
Extra stock to allow for uneven demands, serves as a buffer
