Ch. 4 Inventory Management Flashcards
(60 cards)
What are the two big questions in inventory management
When to order goods
How much to order
What costs influenced the decisions of inventory ordering?
1) Setup/Order cost
2) Stockout COst
3) Holding Cost
4) Material costs- quantity discount
Setup/Order costs
Make & Buy Costs
Make costs: cost of setup time and admin costs of each production order
Buy: admin costs that come from each purchase order
Stockout costs
the costs that comes from having not enough invenootry, LOST PROFIT COST
Customer will go elsewhere and may never come back
Holding costs 2 Types
1) Opportunity cost of havign money tied up in inventory
2) storage space, material handling costs, obsolesence, theft
Material Costs- Quantity Discount
Discount on the per unit cost if order quantity exceeds minimum
If 20/unit usually, and you order 100+ it will be 18/unit
How are the cost factors related to successful inventory management
succesful inventory management= balancing all 4 costs
why is control of inventory expensive
controlling has admin costs!!!!
2 types of invenemtnary management systems
1) Periodic: low cost and smaller items (Screws ties)
2) Continuous: high cost and bigger items
Periodic inventory management
1) no computer tracking
2) order quantity: fill the bin (VARIED QUANTITY)
3) order trigger: whenever you check periodically (FIXED TIMING)
Continuous inventory system
1) use computer tracking every time it is uesd
2) order quantity: analyze and calculate an exact amount (fixed quantity)
3) order trigger: warning level in computer (varied timing)
What has fixed timing, and varied quantity
periodic review systems:
what has fixed quantity and various timing
Continuous revieq
In periodic review, what formula is used to determine the quantity that is ordered
Q= Order up to level- quantity on hand
In continous review how is it determined when to buy
when inventory positon (on hand inventory+ on order inventory) falls to reorder point (r) or lower
In the P-model, what is fixed and what varies
Q varies (the height ordered changes)
T is fixed, in the same intervals you order
In the Q model, what is fixed and what varies
T varies, because you dontknow when exactly it will run out
Q is fixed because you know how much you need to get
What are the two systems that combine the continuous tracking (continuous) and low admin of (periodic systems)?
1) Fast “usage” recording
2) “backflusihing”
Fast Usage Recording
Press button on shelf each time an item is taken (low admin)
button tied to software sustems taht detemines how mcuh inventory is on hand (constant tracking)
Backflushing
- record only that the product was completed in the software
- software will use bill of materials to automatically reduce those materials in the system (constant tracking)
what is independant demand
demand for items is not related to each other (like in a store, if you buy one thing you wont for sure buy another)
What are the cost components of inventory
A) item costs
B) setup /replenishment costs
C) Holding Costs
Inventory Costs components: item costs
Simplest casE: for each replenishment, cost is C*Q
C= unit variable cost ($/unit)
Q= order quantity (units)
inventory costs components : Setup Costs (S)
what are the 2 types
1) outside ordering (purchase order)
-> purchasing analysis, receiving, inspection
-> a/p
2) In-House Supply (production order)
-> production set up cost: labour cost, learning effect (Time and scrap), lost production time
0> cleical: recording labour time and materials used
