Chapter 12.docx

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Global Management Studies
GMS 401
Carmen Schifellite

Chapter 12: Inventory Management LO 1: Introduction Inventory - idle material/product in warehouse → kept for use/sale in future - relate to kind of bus/ Inventory mgmt - planning and controlling inv Importance of inv - 30% of CA, 90% working capital invested in inv - return on investment (ROI) = profit after tax ÷ total assets - ↓ inv = ↑ ROI Functions/Purposes of Inv 1. wait while being transported o in transit inv - items being transported (freight, terminal) 2. protect against stock outs o delayed delivered and unexpected increase in demand → increase risk of stock outs/storage o delay → weather condition o risk reduced by holding safety stock - stocks in excess of av demand to compensate for variability on demand and delivery lead time 3. take adv of ecn lot size and quantity discount o buys in quantities that exceed their immediate req o inv storage enables org to buy/produce in ecn lot sizes o order/ replenishment cycle - consecutive orders occurring after some interval of time o cycle stock/lot/batch - resulting inv 4. smooth seasonal demand/production o seasonal inv - build up inv during off season periods to meet high req during peak seasons 5. decouple operations o buffers - maintain continuity of productions that otherwise be disrupted by events (breakdown of equip, accident) 6. hedge against price ↑ o anticipation inv - suspect price increase → purch larger than normal amt to avoid price increase Importance and Obj of Inv Mgmt - under stocking - missed deliveries, dissatisf customers - over stocking - more productive → storage space - Concerns: 1. level of customer service (availability) - right goods, sufficient quantities, right place, right time 2. cost of ordering and holding inv - obj: achieve satisf level of customer service (availability) while keeping inv cost w/in reasonable bound - Decision 1. timing - when 2. size of order - how much - in-stock/fill rate - % of demand filled f/ stock on hand - inventory turnover - ratio annual cost of goods to av inv investment o tell how many times inv sold/used o higher ratio = better → more efficient use of inv o compare comp of diff size in same industry - day of inv - expected # days of sale/usage supplied f/ inv LO 2: Requirements for effective inventory management 1. Safely storing and using inv - warehouse - uncluttered - cramped → excessive damage to stock - warehouse mgmt system - computer software that controls the movement and storage of material w/in a warehouse and processes the associated transactions - problem: obsolete items - efficient → outdated items → sent back to supplier/ sold at discount (salvaged) 2. tracking inv and using inv control model - periodic counting - physical count of items in inv made at periodic intervals (weekly, monthly) o fixed order interval model - estim how much demand prior and base order quantity on info = replenish o adv: order f/ same supplier = issued at same time o disadv: stock out → protect by having extra stock, time, cost of physical count - perpetual tracking - keep track of removal and additions to inv contin → provide current inv level of each item - fixed order quantity/reorder point model - order of fixed size palce when amt on hand drops to below min quantity = reorder pt o adv: shortages avoided o disadv: added cost of contin record keeping - two bin system - reorder when 1st bin empty, use 2nd bin until order arrives; top off 2nd bin and leave rest in 1st bin; start drawing inv f/ 1st bin until empty again o reduce chance of stock outs o adv: no need to record each w/drawal f/ inv or keep track of inv on hand o disadv: reorder card can't be returned - bar code - # assigned to item/location made of group of vertical bars of diff thickness that are readable by scanner o UPC o rep change in inv mgmt = increase speed and accuracy of transactions o RFID - use radio waves to identify items 3. forecasting demands and lead time - purchase lead time - time interval b/ ordering and re/ order o greater variability = greater need for additional safety stock → reduce risk of shortage - point of sale (POS) system - software for elec recording sales at time and location of sale o used in forecasting 4. estim inv cost - holding/carrying cost - cost to keep item in inv (warehousing cost, theft, spoilage) o stated as % or $ - ordering cost - cost of actual placement of an order (not inclu purch cost) o eval supply, transportation o fixed $ amt per order - setup - prep machine for job by adj to changing cutting tools - shortage cost - cost of demand > supply of inv on hand; inclu unrealized profit (opp cost of not making sale), loss of goodwill 5. performing A-B-C classification - A-B-C classification - grouping iv items into 3 classes according to measure of importance and allocating inv control effort accordingly o A = very important → 15-20% o B = moderately important → 70-80% o C = least important → 50-60% o small # of items wil
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