CP-OM-12-BB - IDS 302 - Chapter 12: MANAGING INVENTORIES C....

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C. Probett/Spring 2009 12-1 IDS 302 - Chapter 12: MANAGING INVENTORIES
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C. Probett/Spring 2009 12-2 Chapter 12 Learning Outcomes: LO1 Explain the importance of inventory, types of inventories, and key decisions and costs LO2 Describe the major characteristics that impact inventory decisions LO3 Describe how to conduct an ABC inventory analysis LO4 Explain how a fixed order quantity inventory system operates LO5 Explain the logic of the EOQ model and how to calculate the optimal order quantity LO6 Explain how a fixed period inventory system operates LO7 Describe how to apply the single period inventory model
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C. Probett/Spring 2009 12-3 Managing Inventories Inventory is any asset held for future use or sale The expenses associated with financing and maintaining inventories are a substantial part of the cost of doing business (i.e., cost of goods sold) Inventory Management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs
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C. Probett/Spring 2009 12-4 Functions of Inventory To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts
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C. Probett/Spring 2009 12-5 Basic Inventory Concepts Raw materials (RM) - component parts, subassemblies, and supplies are inputs to manufacturing and service-delivery processes Work-in-process (WIP) - inventory consists of partially finished products in various stages of completion that are awaiting further processing Finished goods (FG) - inventory is completed products ready for distribution or sale to customers Cycle inventory - (order or lot size inventory) is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale Pipeline Inventory - goods-in-transit to warehouses or customers Safety stock inventory - additional amount of inventory that is kept over and above the average amount required to meet demand
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C. Probett/Spring 2009 12-6 Exhibit 12.1 Role of Inventory in the Value Chain RM WIP FG MRO
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C. Probett/Spring 2009 12-7 Inventory Management Decisions Inventory managers deal with two fundamental decisions: When to order items from a supplier or when to initiate production runs if the firm makes its own items How much to order or produce each time a supplier or production order is placed Effective inventory management A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of Holding costs Ordering costs Shortage costs A classification system
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C. Probett/Spring 2009 12-8 Inventory Management Costs Ordering or setup costs
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CP-OM-12-BB - IDS 302 - Chapter 12: MANAGING INVENTORIES C....

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