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Chapter 12

COMMERCE 2OC3 Chapter 12: Chapter 12 Inventory Management

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McMaster University
Fouzia Baki

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  Managing Inventory  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.  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.  Record Accuracy  Cycle Counting:  Items are counted and records updated on a periodic basis. Often used with ABC analysis to determine cycle. Has several advantages: ○ 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  Inventory Models  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.  Ordering costs:
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