Inventory Management

Inventory Management - Inventory Management Inventory...

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Inventory Management Inventory Management
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9-2 Inventory Management Inventories are stocks of goods and materials that are maintained to satisfy normal demand patterns Inventory management Decisions drive other logistics activities Different functional areas have different inventory objectives Marketing objectives? Finance objectives?
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9-3 Inventory Management Inventory management (continued) Inventory costs are important to consider Inventory turnover : cost of goods sold divided by average inventory at cost cost of goods sold = inventory turnover average inventory (many firms use Sales Revenue instead of COGS) Compare with competitors or benchmarked companies
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9-4 Inventory Management Low inventory turnover = high inventory carrying costs, little (or no) stockout costs High inventory turnover = low inventory carrying costs, high stockout costs Managing the tradeoff is important to maintain service levels
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9-5 Inventory Classifications Psychic stock: stimulates demand Cycle or base stock: for normal demand patterns Safety (or buffer) stock: protect against uncertainties in demand and/or replenishment time Pipeline or in-transit stock: inventory that is en route between various nodes Speculative stock: examples? Inventory held for several reason like upcoming holidays.
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9-6 Inventory-Related Costs Inventory carrying (holding) costs Risk Costs Obsolescence Inventory shrinkage Storage Space Costs Variable storage and handling costs Service Costs Insurance costs Taxes Capital or Finance Costs Interest charges Opportunity cost Stockout Costs – the cost of not having inventory on hand when demand occurs
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9-7 Determination of the Average Cost of a Stockout Alternative Loss Probability Average Cost 1. Brand-loyal customer $00.00 .10 $00.00
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Inventory Management - Inventory Management Inventory...

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