What are the various types of inventory
Raw material: (purchased but not processed)
work-in-process: (undergone some changes but not completed)
finished goods: (completed product awaiting shipment)
maintenance/repair/operating (MRO): (necessary to keep machinery
and processes productive)
What are the functions of inventory?
To Provide a selection of goods for anticipated demands
To separate various parts of the production process To
take advantage of quantity discounts To hedge against
inflation
ABC Analysis
Divides inventory into three classes based on annual dollar volume,
delivery problems, quality problems, high shortage or holding cost,
anticipated engineering changes Policies that focus on the
few critical parts and not the many trivial ones
A- highest value products
B- middle tier value products
C - lowest value products
Distinguish dependent from independent demand
Dependent- Better
response to customer orders, better utilization of facilities.
Dependent when relationship between items can be determined. If a
product can have a schedule between items, a dependent demand
technique should be used. Component
parts/subassemblies
Independent- demand
for a finished product, such as a computer, a bicycle, or a pizza.
Dependent demand, on the other hand, is demand for component parts
or subassemblies. finished products
Cycle counting and its use for inventory accuracy
Eliminates shutdowns and interruptions Eliminates
annual inventory adjustment Trained personnel audit
inventory accuracy allows causes of errors to be identified and
corrected Maintains accurate inventory records
Allows businesses to count a number of items in a number of
areas without needing to count the entire inventory (inferred
quantity of inventory)
Study EOQ Model: Calculate EOQ (Optimal lot size quantity), maximum
and average inventory levels, # of orders per year and the time
between orders. Calculation of annual holding costs and annual
ordering costs. Assumptions made when using the EOQ model.
Additional EOQ Formula in part 3
Understand the impact on quantity discount models by different
factors such as:
Ordering Cost: includes processing costs, cost of insurance for
shipping, and unloading Carrying Cost: includes insurance,
inventory taxes, and obsolescence (cost of being outdated,
obsolete) Product Cost: Cost of creating a product
Calculate the Reorder point and safety stock for given probability
distribution with standard deviation (or variance) for the demand over
lead time or standard deviation for the demand and given lead time.
Calculate Inventory Turns and Days of Inventory as a measure of
Inventory performance