cheatsheet final - Inventory Stock of any item or resource...

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Inventory: Stock of any item or resource used in an organization Raw materials & component parts, Work in process, Finished products, Replacement parts, tools, & supplies, Goods-in-transit to warehouses or customers Meet predictable variability in demand Seasonal inventories (e.g., candy for Halloween) Sales (e.g., BOGO for 50% off),Safeguard for unpredictable variability in demand Safety stock (i.e., extra stock maintained to mitigate risk),Significant price fluctuations (e.g., oil reserves). To deal with production of service variability Buffer inventory (or the Queue), Decouple the arrival/service variability cycle stocks- Economies of scale, Reduce the production cost by using big batches, Reduce the transportation cost by shipping large loads Pipeline inventories , There is a time lag between ordering and receiving Strategic inventories: Optimal planning (e.g., Apple’s iPhone 6) Speculative inventories: In 1979, the Hunt brothers attempted to corner the silver market. The price jumped from $6 to $49 per ounce (a 712% increase in a few months). The brothers were estimated to hold 33% of the worlds supply of silver Why Not Hold Inventory? It’s not free ( Storage costs , Opportunity cost of capital) It’s risky ( Short product life cycles increase obsolescence risk) It may not be needed( Information substitution (Recall OM triangle)) It hides problems Type A items - small group of high valued items. 15% of the number of items, 75- 80% of the total value Counting Once a month Type B items - Accounts for 35% of the number of items and 10-15% of the total value - Counting Once a quarter Type C items : 50% of the total number of items and for about 5-10% of the total value. Counting Once every six months Fixed-order quantity, Q model. Each order is the exact same size The ordering is triggered by an event. The timing of this event is random. An order of a fixed quantity Q is placed every time the inventory position falls below a reorder point R. Inventory Costs Ordering/Setup costs (fixed costs): Fixed transportation costs, Order processing costs Holding (or carrying) cost: Costs for storage, handling, insurance, working capital tied up, technology, skilled workers, security, etc. Shortage (opportunity) costs, Lost sales, lost goodwill, shortage penalty, backorder cost, lawsuits, external/internal investments, etc.
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