CPIM DSP - Session One Study Note - Session One Inventory Policy Two types of inventory policies are aggregate and item-level Aggregate inventory

CPIM DSP - Session One Study Note - Session One Inventory...

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Session One – Inventory Policy Two types of inventory policies are aggregate and item-level - Aggregate inventory management Establishing the overall level (for example, dollar level) of inventory desired and implementing controls to achieve this goal. # Resolving sales and operational conflicts > The resolution of conflicting objectives does not always have to be accomplished by tradeoffs. For example, lean and theory of constraints production approaches enable more than one objective to be achieved by increasing supply chain velocity through a number of methods. # Inventory valuation > Inventory is often the largest asset on company’s balance sheet. > Purpose - It enables to determine the impact of inventory on the financial condition of the business, providing information necessary for strategic and policy decisions, such as inventory turns and performance metrics. It is also useful in determining operational approaches to order quantities, safety stock, and replenishment. > Inventory includes raw materials, WIP, and finished goods owned by the company. MRO (Maintenance, Repair & Operations) supplies are not included as assets; they are considered expenses. > Cost Accumulation Methods (manufacturing and service companies) >> Cost systems Project - project basis Process - flow production Job-order costing - ETO and MTO job shop manufacturing > Retail and distribution environments do not need to accumulate cost to manufacture, but do need to track inventory costs as they buy and sell goods. > Cost of goods sold >> For retail store, the cost of goods sold = landed costs = acquisition cost + freight cost >> For service organizations, spare parts are tracked as cost of goods sold; intangible services are consumed by operating supplies >> For manufacturing companies, the cost of goods sold = cost of sales = labor + materials + overhead > Inventory valuation methods >> Average cost

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