Ch 13 Final Review Flashcards
(26 cards)
A stock or store of goods for future use
Inventory
Items that are ready to be sold or used
Independent demand items
True or false: A “typical” firm has roughly 30% of its current assets and as much as 90% of its working capital invested in inventory
True
What are the two main concerns with inventory management?
1) Customer service
2) Costs of inventory
Having the right goods available in the right quantity in the right place at the right time
Customer service
What are managements two major concerns regarding inventory?
1) Tracking inventory
2) Decisions on when to order and how much
Physical count of items in inventory made at periodic intervals
Periodic system
System that keeps track of removals from inventory & receipts into inventory continuously, for each item
- Order is placed when inventory drops to a predetermined level
Perpetual Inventory System
Two containers of inventory; reorder when the first is empty
Two-bin system
System that electronically records actual sales
Point-of-sale (POS) systems
Time interval between ordering and receiving the order
Lead time
Amount paid to buy the inventory
Purchase cost
Cost to carry an item in inventory for a length of time
Holding (carrying) cost
Costs of ordering and receiving inventory
Ordering costs
The costs involved in preparing equipment for a job
Setup costs
Costs resulting when demand exceeds the supply of inventory
Shortage (stock-out) costs
Classifying inventory according to some measure of importance, and allocating control efforts accordingly
ABC approach
A physical count of items in inventory
Cycle counting
Identify the optimal order quantity by minimizing the sum of annual costs that vary with order size and frequency
Economic order quantity (EOQ)
What is the formula for total cost?
= (Q/2)(h) + (D/Q)(s) Q = Order quantity H = Holding costs D = Demand S = Ordering cost
When the quantity on hand of an item drops to this predetermined amount, the item is reordered
Reorder point
What is the formula for reorder point (ROP)?
d * LT + safety stock
d = demand rate
LT = lead time
The probability that demand will not exceed supply during lead time
Service level
What is the formula for service level?
= 100% - Stock out
