COMMERCE 2OC3 Lecture Notes - Lecture 22: Stockout, Inventory Investment, Inventory Control

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Document Summary

Inventory: a resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state. Inventory is waste according to the lean methodology. Incurred as a result of the work involved in placing purchase orders with suppliers or configuring tools, equipment, fixed transportation costs, and machines within a factory to product an item. The price paid for the purchased good or the internal cost of producing them. Includes costs for storage, insurance, working, transportation, technology, workers, security, etc. Costs associated with a sku being unavailable when needed to meet demand demand. Includes lost sales, lost goodwill, shortage penalty, backorder cost, lawsuits. A stockout happens when there is not enough inventory to satisfy demand. A backorder occurs when a customer is willing to wait for an item to be delivered in the future. A lost sale occurs when the customer is unwilling to wait and purchases the item elsewhere.

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