Inventory Flashcards
(12 cards)
What is an aggressive approach to inventory?
Means we would reduce the level of inventory that we hold.
What are the benefits of an aggressive approach to inventory?
Reduction in our investment in working capital and in our working capital cycle.
Less cash tied up in working capital which results in lower financing costs and an improvement to profit.
Minimal extra warehouse demands on the warehouse, will save costs in the future if we expand.
A reduced risk of damage to inventory.
Reduced risk of overdemand and having to sell stock for less money.
What is just in time (JIT) purchasing?
How we purchase our raw materials. Involves timing orders so that raw materials were delivered and used straight away.
What makes JIT possible?
Good relationships with our suppliers to get deliveries at short notice.
Good information about future production schedules to predict production requirements.
Require investment into new integrated systems
What is EOQ?
Economic order quantity (inventory management system)
What does a EOQ do?
calculates
the “optimum” order quantity for inventory items. This exact quantity is then ordered every
time an order is made.
What does ‘optimum’ mean?
Minimises total costs of inventory holding and ordering while ensuring we order enough to meet demand.
What are the impacts if a product is recalled?
Costs associated with the recall will be written off to the P&L as they are incurred.
Unlikely to be recovered by insurance.
Impact on inventory if product is recalled?
Consider recalled products already in inventory. Should be carried at the lower of cost and net realisable value.
Could sell to another client which the recall will not impact (such as they don’t mind if the vitamin D is at the wrong amount for purpose as long as it is safe) although ethically preferable to dispose of them.
Long term impact of a recall
Reputation if not handled correctly.
Due to costs of the recall and bad reputation, it might be an idea for Halfpenny to sue the supplier if they are at fault.
Could Halfpenny use JIT (Just in time) approach?
Halfpenny has a good relationship with suppliers so this should be able to be negotiated easily.
Some may have been chosen on price but if they are close by it could be possible.
How can JIT help with constraints?
Reduction in waste
More flexible production process
Smooth flow of work through the production plant
Reduction of capital tied up in inventory
