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ch12_outline - STUDY OUTLINE FOR Chapter 12 INVENTORY...

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STUDY OUTLINE FOR Chapter 12- INVENTORY MANAGEMENT 1. Explain why inventory management is a core operations management activity. Necessary in order to operate efficiently, contribute to customer satisfaction. Inventories often account for a significant portion of the company’s total assets so a reduction in inventory can result in a significant increase in ROI. The ratio of inventories to sales is one measure that is used to gauge the health of the U.S. economy. - in the retail and wholesale industry IS the sale of merchandise (inventory) 2. How is inventory defined? Inventory : a stock or store of goods 3. Explain the difference between independent-demand inventory and dependent-demand inventory. Independent demand : finished goods, items that are ready to be sold (e.g. a computer) Dependent-demand : components of a finished product (e.g. the parts that make up a computer). The amount of parts needed depends on how many finished goods we need to produce. *The focus in this chapter is on independent demand…the demand for the finished goods* 4. Name some of the different kinds of inventories manufacturing firms carry. Raw materials and purchased parts, partially completed (WIP), finished goods inventories (manufacturing firms and retail stores), replacement parts tools and supplies, and goods-in-transit to warehouses or customers. 5. List eight reasons for holding inventories. 1) To meet anticipated customer demand - “anticipation stocks” they are held to satisfy the average/expected demand 2) To smooth production requirements - firms that experience seasonal demand often build up inventory during preseason periods to meet the higher requirements in seasonal periods. (i.e. make x-mas cards before December) 3) To decouple operations - having buffers so that if one part of the operation chain breaks down the other operations can continue producing. 4) To protect against stockouts - delayed deliveries and unexpected increases in demand increase the risk of shortages- the risk can be reduced by having safety stocks (stocks in excess of average demand to compensate for variability) 5) To take advantage of order cycles - firms buy and produce in economic lot sizes without having to try and match purchases or production with demand requirements in the short run…results in periodic orders or order cycles. The resulting stock from doing this is called
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This note was uploaded on 04/16/2008 for the course MIS 373 taught by Professor Verbleski during the Spring '08 term at Arizona.

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ch12_outline - STUDY OUTLINE FOR Chapter 12 INVENTORY...

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