SMG OM 323 Chapter Notes - Chapter 13: Opportunity Cost, Lead Time, Devaluation
21 Jan 2017
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Document Summary
An inventory is a stock or store of goods. Many items firms carries relate to the kind of business it engages in. Manufacturing firm carry supplies of raw materials, purchased parts, partially finished goods, as well as spare parts for machines, tools, and other supplies. Department stores carry clothing, furniture, carpeting, stationary, cosmetics, cards, and toys. To achieve economies of scale (cycle stock: fixed costs, quantity discounts. To hedge against possible price increases in the near future (speculative stock) For example, if units are in the systems for 10 days, and the demand rate is 5 units a day, average inventory is 5 units/day x 10 days = 50 units. Average ~30% (ranges from 20% to 40% of item cost : opportunity cost of investment (interest) : associated with having funds that could be used elsewhere. Usually the largest and most important element. Variable portion of these costs is pertinent.
