MGCR 472 Chapter 11: Ch. 11

• School: McGill University
• Department: Management Core
• Course: MGCR 472
• Professor: Malleswara Talla

Document Summary

What is inventory: definition: any material or product sitting idle, stock of materials, stored capacity. Types of inventories: raw materials & purchased parts, partially completed goods: work in progress, finished-goods inventories (manufacturing firms) or merchandise (retail stores, replacement parts, tools, & supplies (important for service companies, goods-in-transit to warehouses or customers. Inventory classification: firms invest 30 % of current assets and 90% of working capital in inventory. Characteristics of inventory systems: demand: constant vs. Variable // known vs. random: lead time: known vs. random, review time: continuous vs. Periodic: excess demand: backordering vs. lost sales, changing inventory. Costs associated with inventory: usually represented as an annual cost . Inventory holding (carrying) cost (h): cost to physically carry an item in inventory: usually = , where i = annual interest rate & p = purchase/production cost. H = $/unit/year: charged proportional to the average level of inventory, holding cost s as the following cost items !