Chapter 12 Inventory Management
March 28, 20112:46 AM
Global Company Profile: Amazon.com
The Importance of Inventory: The objective is to balance between
inventory investments and customer services．
Functions of Inventory
Types of Inventory
ABC Analysis: Divides inventory into three classes based on annual
A - High annual dollar volume: Should maintain good
relationship with the manufacturers and suppliers, invest money
B - Medium annual dollar volume:
C - Low annual dollar volume:
Other criteria than annual dollar volume may be used:
Anticipated engineering changes, delivery problems, quality
problems, high unit cost.
Policies employed may include: More emphasis on supplier
development for A items. Tighter physical inventory control for A
items. More care in forecasting A items.
Items are counted and records updated on a periodic basis.
Often used with ABC analysis to determine cycle. Has several
○ Eliminate shutdowns and interruptions. Eliminate annual
inventory adjustments. Trained personnel audit inventory
accuracy. Allows causes of errors to be identifies and
corrected. Maintains accurate inventory records.
Control of Service Inventories
Independent Versus Dependent Demand
Independent demand: TV
Dependent demand: Cable for the TV
Holding, Ordering, and Setup Costs
Holding cost: Quantity increase, holding cost also goes up. The
costs of holding or "carrying" inventory over time.