Lecture 9- Chapter 11

Lecture 9- Chapter 11 - Chapter 13 Inventory Management How...

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Unformatted text preview: Chapter 13 Inventory Management How How Much? Much? When! When! Inventory Management Inventory Management is planning, coordinating, and controlling activities related to the flow of inventory into, through, and out of an organization Costs Associated with Goods for Sale Managing inventories to increase net income requires effectively managing costs that fall into these five categories: 1. Purchasing Costs 2. Ordering Costs 3. Carrying Costs 4. Stockout Costs 5. Quality Costs Management of Inventory Costs 1. Purchasing Costs the cost of goods acquired from suppliers, including freight 2. Ordering Costs the costs of preparing and issuing purchase orders; receiving and inspecting the items included in the orders; and matching invoices received, purchase orders, and delivery records to make payments Management of Inventory Costs 1. Carrying Costs the costs that arise while holding inventory of goods for sale. This includes the opportunity cost of the investment tied up in inventory, and costs associated with storage 2. Stockout Costs the costs that result when a company runs out of a particular item for which there is customer demand (stockout) and the company must act quickly to meet the demand or suffer the costs of not meeting it Management of Inventory Costs 1. Quality Costs the costs that result when features and characteristics of a product or service are not in conformance with customer specifications. These costs include: 1. Prevention 2. Appraisal 3. Internal Failure 4. External Failure Why Hold Inventory - Five reasons 1. To decouple workcenters; 2. To meet variations in demand; 3. To allow flexible production schedules; 4. As a safeguard against variations in delivery time; and 5. To get a lower price. The First Step in Managing Goods for Sale The first decision in managing goods for sale is how much to order of a given product Economic Order Quality (EOQ) is a decision model that calculates the optimal quantity of inventory to order under a given set of assumptions Types of Inventory Time On-hand inventory Order received Order received Order received Order received Fluctuations in Inventory Independent Demand A B(4) C(2) D(2) E(1) D(3) F(2) Dependent Demand Independent demand is uncertain....
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Lecture 9- Chapter 11 - Chapter 13 Inventory Management How...

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