Independent_Demand_Inventory_021209

Independent_Demand_Inventory_021209 - Michigan State...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Michigan State University, 2004- 1 - Michigan State University, 2008- 1 - MSC 303 MSC 303 Independent Demand Inventory Independent Demand Inventory Management Management Michigan State University, 2004- 2 - Michigan State University, 2008- 2 - Supply Chain Management and Inventory Management A major emphasis over the past two decades has been placed on reducing the amount of inventory There are many who argue that having inventory is bad Their reasoning is based on the financial implications of holding inventory Michigan State University, 2004- 3 - Michigan State University, 2008- 3 - Types of Inventory Raw material Work-in-process Finished goods Maintenance, repair, and operating supplies (MRO) Transit Inventory: could have finished goods in transit, raw materials in transit, MRO in transit, etc. This inventory is different because it is not in one place, moving b/w 2 places. Not in use. Michigan State University, 2004- 4 - Michigan State University, 2008- 4 - Financial Implications of Inventory Inventory represents investment by the firm It is an asset on the firms balance sheet Companies typically desire to keep their investment in assets as low as possible Maintaining inventory costs money on an on- going basis. Thus, inventory also causes expenses to be incurred These expenses show up on the firms income statement However, not having inventory when customers want it results in negative financial consequences as well Michigan State University, 2004- 5 - Michigan State University, 2008- 5 - Inventory Holding/Carrying Cost Cost of capital (opportunity cost) Taxes Insurance Costs of obsolescence and loss Costs of material handling, tracking, and management Cost of owning and maintaining storage space These costs are directly related to how much inventory you hold. Michigan State University, 2004- 6 - Michigan State University, 2008- 6 - INVENTORY HOLDING COST AVERAGE PERCENT PERCENT ELEMENT OF COST RANGE Cost of Capital 15.0 8.0 40.0 Taxes 1.0 0.5 2.0 Storage/handling/mgt. 2.0 2.0 4.0 Insurance 0.5 0.0 2.0 Obsolescence 1.2 0.5 2.0 Total 19.7 11.0 50.0 Percentage is annual percent of average inventory value Michigan State University, 2004- 7 - Michigan State University, 2008- 7 - OTHER COSTS RELATED TO INVENTORY Ordering Costs Preparation Transmittal Receiving Payment processing Product Price Management Stockout Costs Michigan State University, 2004- 8 - Michigan State University, 2008- 8 - So, Why Carry Inventory? Balance Supply and Demand Seasonality Production Processes Provide Buffer against Uncertainty/Variability in Supply and/or Demand Basic Economics of Buying Geographic Specialization Michigan State University, 2004- 9 - Michigan State University, 2008- 9 - Key Inventory Metrics Stock-outs Some statistics to keep in mind Inventory turnover Fill Rate Item (unit) Line Orders shipped complete...
View Full Document

Page1 / 41

Independent_Demand_Inventory_021209 - Michigan State...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online