SYST 16529 Lecture Notes - Lecture 4: The Ideal Condition, Stock Keeping Unit, Lead Time

• School: Sheridan College
• Department: Computer Programmer
• Course: SYST 16529
• Professor: Michael

Document Summary

However, in practice, inventory is to be maintained for consumption during "variations in lead time". It would incur lots of costs in terms of logistics. So bulk buying, movement, and storing brings in economies of scale, thus extra inventory. Economy of scale means that when you buy more of an item you pay less per item. If you buy one coke you might pay . 50 or more for it but if you buy a case of coke at the supermarket you may pay as little as 40c for each can or bottle. Of course, the problem is that the inventory costs money, has a carrying cost associated with it, and involves risk because you may not know when and for much it will sell. Inventory is a highly dynamic asset of the business. Effective inventory management is all about knowing what is on hand, where it is in use, and how much finished product results.