Supply Chain Management - Physical Distribution 1....

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Physical Distribution 1. Inventory management The process of managing inventories in such a way as to minimize inventory costs, including ordering costs, holding costs, and potential stock-out costs. 3 categories of Inventory costs : - Order (Set-up) costs – incurred when placing and receiving orders. - Carrying (Holding) costs – the investment costs of storing products until they are purchased or shipped to customers. A firm incurs carrying costs to reduce ordering and stockout costs. Carrying costs include storage costs plus opportunity cost (i.e., the cost incurred by investing in inventory rather than making an income-earning investment). Examples are insurance, taxes, security, depreciation, spoilage, interest on invested capital, obsolescence, and warehousing costs (rent). - Stockout costs – the costs of lost sales (profits) when items are not in inventory when needed. As the variability in lead time increases , a company will tend to carry larger safety stocks. 2.
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This note was uploaded on 02/01/2009 for the course ACTG 6610 taught by Professor Ward during the Spring '09 term at Middle Tennessee State University.

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Supply Chain Management - Physical Distribution 1....

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