MSC EXAM 2 - NEW INVENTORY MANAGEMENT: Types of Inventory:...

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NEW INVENTORY MANAGEMENT: Types of Inventory: 1. Raw material 2. Work-in-process 3. Finished goods 4. MRO- Maintenance, repair, and operating supplies 5. Transit Inventory A major emphasis over the past two decades has been placed on reducing inventory. The argument that having inventory is bad stems from financial implications of holding inventory Financial implications of inventory: 1. Inventory represents investment (asset) by the firm and companies typically desire to keep investment in assets low. 2. Maintaining inventory costs money (expenses) on an ongoing basis. HOWEVER, not having inventory when customers want it results in negative financial consequences as well. So, what makes up the costs of holding inventory? Inventory Holding Costs- Ave. % of cost - % Range 1. Capital cost – 25% of cost – can be from 8-40% 2. Storage / Handling – 2 % of cost – can be from 2-4% 3. Obsolescence – 1.2 % of cost – can be from 0.5-2% 4. Taxes – 1 % of cost – can be from 0.5-2% 5. Insurance / Maintenance – 0.5 % of cost – 0.0-2% TOTAL INVENTORY HOLDING COST: 29.7 % of average cost – can be from 11-50% Costs of Inventory: 1. Inventory Holding Costs a. Capital cost b. Storage and Handling c. Obsolescence d. Taxes e. Insurance 2. Ordering costs 3. Stock-out costs 4. Produce price
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5. Management So, why carry inventory? Well, there are 4 main reasons to carry inventory: 1. Economic reasons – it may be less expensive to hold inventory and incur related costs in many situations, such as if there are 1. purchasing incentives or 2. manufacturing economics
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MSC EXAM 2 - NEW INVENTORY MANAGEMENT: Types of Inventory:...

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