COMMERCE 2OC3 Chapter Notes - Chapter 12: Lead Time, Carrying Cost
25 Apr 2017
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The importance of inventory: the objective is to balance between inventory investments and customer services . Abc analysis: divides inventory into three classes based on annual dollar volume. A - high annual dollar volume: should maintain good relationship with the manufacturers and suppliers, invest money and resources. 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. Items are counted and records updated on a periodic basis. Often used with abc analysis to determine cycle. Allows causes of errors to be identifies and corrected. Holding cost: quantity increase, holding cost also goes up. The costs of holding or carrying inventory over time. Setup costs: quantity increases, the setup cost also goes up. Total cost: minimum point: when the holding cost and the setup cost are the same.
