chapter 12 flashcards
what are the reasons for inventory?
- to “decouple” or separate various parts of the production process
- to provide a stock of goods that will provide a “selection” for customers
- to take advantage of qauntify discounts
- to hedge against inflation and upward price changes
- save on transportation
what are the types of Inventory?
- raw material
- work in progress
- finished goods
- maintenance/repair/operating supply
what are the Disadvantages of Inventory?
Higher Cost
- item cost (if purchased)
- ordering (or setup) cost
- Costs of forms, clerks’ wages, transport
- holding (or carrying) cost
- building a lease, insurance, taxes, etc.
- difficult to control
- hides production problems
explain each step in the Material Flow Cycle?
- Run Time: job is at machine, being worked on
- Setup Time: job is at machine, and the machine is being “setup”
- Queue Time: job is waiting, for other jobs to be processed
- Move Time: the time is a job spends in transit
- Wait Time: the job is waiting to be moved to the next work area
- Other: “just in case” inventory
explain ABC analysis
- Divides on hand inventory into 3 classes: A class, B class, C class
- Basis is usually annual $ volume:
$ volume=annual demand x unit cost - Policies based on ABC analysis
- develop class A supplier more
- give tighter physical control of A items
- forecast A items more carefully
how do we calculate Inventory-Sales Ratio?
Average Cost of Inventory / Cost of Monthly Sales
how do we calculate Inventory Turns?
Cost of Yearly Sales / Average Cost of Inventory
what are the Advantages of Cycler Counting?
- eliminates shutdown and interruption of production necessary for annual physical inventories
- eliminates annual inventory adjustments
- provides trained personnel to audit the accuracy of inventory
- allows the cause of errors to be identified and remedial action to be taken
- maintains accurate inventory records
- in some cases, items could be counted, just before a new purchase order is placed for them
how do we minimize Shrinkage?
- good personnel selection, training, and discipline
- tight control of incoming shipments
- effective control of all goods leaving the facility
- the lower the inventory the easier it is to control it
what are the 3 different Inventory Costs?
- Holding Costs
- Ordering Costs
2A. Setup Costs
what are Holding Costs?
associated with holding or “carrying” inventory over time
what are Ordering Costs ?
associated with costs of placing order and receiving goods
what are Setup Costs?
cost to prepare a machine or process for manufacturing an order
whats included in Holding Costs?
- obsolesce
- insurance
- extra staffing
- interest
- pilferage
- damage
- warehousing
whats included Ordering Costs ?
- forms
- order processing
- clerical support
- transport
