COMMERCE 2OC3 Chapter Notes - Chapter 12: Pareto Principle, Inventory Investment, Package Pilferage
27 Apr 2018
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Operations Textbook
Chapter 12
Impt. Of Inventory
- Obj,:Inv.Mgmt: Strike a balance btwn. Inventory investment and cust. Service
- Functions of Inv.
o Four functions of inventory
▪ Provide a selection of gds. For anticipated cust. Demand and to separate
the firm from fluctuations in that demand
▪ To decouple various pare of the prod. Process
▪ To take adv. Of quantity disc.
▪ To hedge against inflation and upward price changes
- Types of Inv.
o Raw Material
▪ Materials that are usually purchased but have yet to enter the manu.
Process
o WIP Inv.
▪ Products or components that are no longer raw materials but have yet to
become finished products
o Maintenance/repair/opr. (MRO) inv.
▪ Maintenance, repair and opr. Materials
o FG inv.
▪ An end item rady to be sold, but still an asset on the companys books
Managing Inv.
- ABC Analysis
o A method for dividing on-hand inv. Into three classifications based on annual
dollar value; known as Pareto principle
o
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- Record Accuracy
o Periodic systems: regular inv. Checks to determine quality on hand
▪ Cons: lack of control btwn. Reviews and the necessity of carrying extra
inv.
o Perpetual System: tracks both receipts and subtractions from inv. On a
continuing basis
- Cycle Counting
o A continuing reconciliation of inv. w/ inv. Records
o Adv.
▪ Eliminates the shutdown and interruption of prod. Necessary for annual
physical inv.
▪ Eliminates annual inv. Adj.
▪ Trains personnel audit the accuracy of inv.
▪ Allows the cause of the errors to be identified and remedial action to be
taken
▪ Maintains accurate inv. Methods
- Control of Service Inventories
o Shrinkage: Retail inv. That is unaccounted for btwn. Receipt and sale
o Pilferage: A small amt. of theft
o Applicable techniques are
▪ Good personnel selection, training, and discipline
▪ Tight control of incoming shipments
▪ Effective control of all gds. Leaving the facility
Inventory Models
- Indep. Vs. Dependent Demand
o Where demand is independent and dependent on another item
- Holding, Ordering, and Setup Costs
o Holding Costs: The cost to keep or carry inv. In stock
o Ordering Costs: The cost of the ordering process
o Setup Costs: The cost to prepare a machine or process for prod.
o Setup time: The time reqd. to prepare a machine or process for prod.
Inv. Models fro Indep. Demand
- Basic Economic Order Quantity Model (EOQ)
o EOQ: An inv.-control technique that minimizes the total of ordering the total of
ordering and holding costs
o Based on several assumptions
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▪
- Minimizing Costs
o
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Document Summary
Functions of inv: four functions of inventory, provide a selection of gds. Demand and to separate the firm from fluctuations in that demand: to decouple various pare of the prod. Of quantity disc: to hedge against inflation and upward price changes. Types of inv: raw material, materials that are usually purchased but have yet to enter the manu. Process: wip inv, products or components that are no longer raw materials but have yet to become finished products, maintenance/repair/opr. (mro) inv, maintenance, repair and opr. Materials: fg inv, an end item rady to be sold, but still an asset on the companys books. Abc analysis: a method for dividing on-hand inv. Into three classifications based on annual dollar value; known as pareto principle. Record accuracy: periodic systems: regular inv. Checks to determine quality on hand: cons: lack of control btwn. Reviews and the necessity of carrying extra inv: perpetual system: tracks both receipts and subtractions from inv.
