NHM 373 Ch 05 - Inventory Control 5 OH 5-1 Steps in the...

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Inventory Control 5 OH 5-1
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Steps in the Procurement Process Identify need for product or service Determine quality requirement s Conduc t make (do) or buy analysi s Determin e qty to purchase Identify alternative supplier sources Determin e source (supplier) for order Order produ ct or servic e Receive product or service Pay for product or service Review supplier performance and ordering process Evaluate procurement process Step 1 Step 2 Step 3 Step 4 Procurement Process Decisions Step 5 Step 6 Step 7 Step 8 Step 9 Step 10 Step 11 Store product Perform service Recurring Purchasing Activities Procurement Evaluation
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*Managing Inventory (Control) Inventory: -Record of food and supply assets owned by the operations Inventory Control: -Process of maintaining items in storage at desired quantity level
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Why Conduct Inventory Control? Purpose: Measures mgt’s effectiveness (control/use of assets) Monitor/ maintain quantity Avoid “Stock outs” Helps determine purchasing needs (indicates ROP, avg inventory, inventory turnover rate) Provides info for cost (food and supply) control Avoid losses (theft, pilferage, spoilage)
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Inventory Control’s relationship to Purchasing Objectives Inventory Control impacts objective of: Maintaining adequate supply Maintaining quality standards Minimize investment
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*Managing Inventory Volume Most important components of inventory management: - - Knowing what products to order - - Knowing when to order them - Influenced by: a. Inventory turnover b. Percentage of Sales Volume
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*Inventory Turnover Rate/Ratio A measure of how quickly food in storage is used The operation’s ordering procedure should reflect the inventory turnover rate of the operation. Influenced by: Type of operation Service/production style Supplier lead time (the amount of time btwn when an order is placed and when the item is received– aka lag time), storage space, budget Average annual turnover rate: Food—20
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*Inventory Turnover Calculation Inventory Turnover = Cost of Goods Sold_(COGS)_____ (Beginning Inventory + Ending Inventory) ÷ 2 Cost of goods sold of at Dixie Med Ctr. during a year was $84,270 and its inventory at the beginning and at the ending of the year was $9,865 and $11,650 respectively. Calculate the inventory turnover ratio of the business from the given information. Solution Average Inventory = ($9,865+ 11,650) = $10,757.5 Inventory Turnover: 7.83 52/7.83=6.66 how long items stayed in storage
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* Sales - recorded at market value Inventory – recorded at cost Low turnover – implies: Poor sales= excessive inventory High turnover – implies: Strong sales Ineffective buying (loss of business) Turnover rate : perishable goods > durable goods **you want a high turnover rate instead of a low turnover rate
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Percentage of Sales Volume Two inventory level rules-of-thumb: Inventory values should equal no more than 1 percent of total annual sales volume.
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