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09 Inventory - Inventory Management What is Inventory Stock...

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Inventory Management
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Stock of materials Stored capacity Examples © 1995 Corel Corp. © 1984-1994 T/Maker Co. © 1984-1994 T/Maker Co. © 1995 Corel Corp. What is Inventory? What is Inventory?
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The Functions of The Functions of Inventory Inventory To ”decouple” or separate various parts of the production process To provide a stock of goods that will provide a “selection” for customers To take advantage of quantity discounts To hedge against inflation and upward price changes
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Types of Inventory Types of Inventory Raw material Work-in-progress Maintenance/repair/operating supply Finished goods
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Divides on-hand inventory into 3 classes A class, B class, C class Basis is usually annual $ volume $ volume = Annual demand x Unit cost Policies based on ABC analysis Develop class A suppliers more Give tighter physical control of A items Forecast A items more carefully ABC Analysis ABC Analysis
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% of Inventory Items Classifying Items as ABC Classifying Items as ABC 0 20 40 60 80 100 0 50 100 % Annual $ Usage A A B B C C Class % $ Vol % Items A 80 15 B 15 30 C 5 55
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Inventory Costs Inventory Costs Holding costs - associated with holding or “carrying” inventory over time Ordering costs - associated with costs of placing order and receiving goods Setup costs - cost to prepare a machine or process for manufacturing an order
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Holding (Carrying) Costs Holding (Carrying) Costs Obsolescence Insurance Extra staffing Interest Pilferage Damage Warehousing Etc.
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Inventory Holding Costs Inventory Holding Costs (Approximate Ranges) (Approximate Ranges) Category
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