Lesson 8 - Inventory Management

Question 1

Inventory

Answer 1

stock/store of goods, necessary for operations, but also contribute to customer satisfaction

Question 2

Independent demand items

Answer 2

items that are ready to be sold/used, components
used would be

Question 3

dependent-demand items

Answer 3

components used for product

Question 4

Types of Inventory (Goal: achieve customer satisfaction while keeping inventory costs low)

Answer 4

Raw materials, Work-In-Process Inventory (partially completed goods), Finished-Goods inventory or merchandise (retail stores), Tools and supplies, Maintenance and repairs inventory (MRO), Goods-in-transit/ pipeline inventory

Question 5

Functions of Inventory

Answer 5

meet customer demand (called anticipation stocks), to smooth production requirements (seasonal inventories), to decouple operations (buffers for breakdowns,..), reduce risk of stockouts (safety stocks to compensate for demand variability), take advantage of order cycles (buy in large economic sizes → periodic orders), to hedge against price increases, to permit operations (logical that there needs to be some WIP), take advantage of quantity discounts

Question 6

Little’s Law

Answer 6

Avg. amount of inventory=avg demand rate*avg time a unit is in a system

Question 7

Management functions - Keep track of inventory

Answer 7

• Keep track of inventory:
  Inventory counting systems: periodic: physical count at fixed
  intervals, perpetual:keeps track of removals on continuous basis and orders at
  specificied Q, cycle counting: physical count
  Two-bin system: reorder when first container of inventory is empty, second is cushion
  Universal product code:bar code printed on label that has information about item
  Stock keeping units: similar, but alphanumeric and unique to each business
  Point-of-sale systems record items at time of sale
• Forecast of demand
• Knowledge of lead times
• Estimates for purchase

Question 8

Economic order quantity

Answer 8

how much to order
balances ACC & AOC

Question 9

Economic Production Quantity

Answer 9

used when production in batches is in place -> no ordering but set up costs

Question 10

Imax

Answer 10

max inventory

Question 11

run time

Answer 11

production phase

Question 12

cycle time

Answer 12

time between setups

Question 13

Reorder Point

Answer 13

When to order
when quantity on hand of an item drops below this
amount, it is reordered

Question 14

Cycle stock

Answer 14

amount of inventory needed to meet expected demand

Question 15

Safety stock

Answer 15

inventory held to reduce probability of stockout because of variability