MG 211 Lecture Notes - Lecture 12: Economic Order Quantity, Carrying Cost, Finished Good
Document Summary
Objective: strike a balance between inventory investment and customer service. One of the most expensive assets of many companies represents 50% of total invested capital. Provide a selection of goods for anticipated demand and to separate the firm from fluctuations in demand. Work-in-progress (wip): undergone some change, not completed, function of cycle time. Maintenance/repair/operating (mro): keep machinery and processes productive. How inventory items can be classified: abc analysis: divides inventory into three classes based on annual dollar volume; used to establish policies that focus on few critical parts and not the many trivial ones. *may use other criteria: high shortage or holding cost, anticipated engineering changes, delivery problems, quality problems. *policies employed include: more emphasis on supplier development for a items, tighter physical inventory control for a items, more care in forecasting a items. Eliminates shutdowns and interruptions along with annual inventory adjustment. Allows causes of errors to be identified and corrected. Can be a critical component of profitability.
