Chapter 12 Inventory Management

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Ryerson University
Global Management Studies
GMS 401
Sam Lampropoulos

CHAPTER 12 INVENTORY MANAGEMENTy Inventory management planning and controlling inventoriesIMPORTANCE OF INVENTORIES y 25 current assets 90 of working capital in inventories y Return on investment ROI is a measure of business performance which is profit after taxes divided by total assets y Reduction in inventories can result in significant increase in ROI y Inventories serve a number of functions 1 To wait while being transported y Items being transported is called intransit inventory 2 To protect against stockouts y Safety stocks are excess of average demand to compensate for variabilities in demand and delivery lead time 3 To take advantage of economic lot size and quantity discount y Inventory storage enables organization to buy or produce in economic lot sizes 4 To smooth seasonal demand or production 5 To decouple operations y Workinprocess buffers permit other operations to continue temporarily while the problem is resolved 6 To hedge against price increase y Anticipation inventory occurs when suspecting a substantial price increase and will purchase largerthannormal amounts to avoid price increase y Inadequate management of inventories result in under and overstock of items y Inventory management has two main concerns 1 Level of customer service availabilityto have the right goods in sufficient quantities in the ri
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