Final Exam- operations management- Fleming (Inventory)

Types of inventory
-raw materials
-MRO (maintenance, repair and operations)
-Work in process (WIP)
-finished goods
Roles of inventory
-balancing supply and demand
-buffers against uncertainties
-enabling economies of buying
-enabling geographic specialization
Carrying (holding) costs
-obsolescence, spoilage, and shrinkage
-material handling, tracking and management
-taxes and insurance
-storage and warehouse management
-opportunity cost
Ordering and set-up costs
-purchased items: placing and receiving orders
-make items: change-over btw items
Stockout costs
-lost sales or customer loyalty
-schedule disruption
Inventory turnover
ratio of average inventory on-hand and level of sales
-COGS/avg. inventory costs
Advantages of inventory turnover
-fresh inventory from high sales
-reduced risk or mark down from obsolescence
-reduced total carrying costs
-lower asset investment and higher productivity
Disadvantages of inventory turnover
-stockouts may mean lower sales
-increased costs from missing quantities requirements
-increased ordering costs
Independent demand
demand is beyond control of the organization
Dependent demand
demand is driven by demand of another item
Continuous review model (the inventory graph)
inventory level are constantly monitored to determine when to place a replenishment order
Total inventory costs
-holding costs
-ordering costs
-Total acquisition costs
Holding costs
associated with storing and assuming risk of having inventory
Ordering cost
associated with placing orders and receiving supply
Total acquisition costs
annual ordering costs+ annual carrying costs
Economic ordering quantity
minimizes total acquisition costs; point at which holding and orders costs are equal
Reorder point
minimum level of on-hand inventory that triggers a replenishment
EOQ assumptions
-no quantity discounts
-no lot size restrictions
-no partial deliveries
-no variability
-no product interactions
total ordering costs + total holding costs + total product costs
ABC analysis
ranking inventory by importance
Bullwhip effect
variation increases upstream in the supply chain (from consumers to manufacturers)
Vendor managed inventory
the vendor is responsible for managing inventory for the customer
-vendor monitors and replenishes inventory balances
-customer saves holding costs
-vendor has higher visibility of inventory usage