final1 - Ch 12 Inventory Management 1 Inventory the stock...

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Ch. 12: Inventory Management 1. Inventory: the stock of any item or resource used in an organization. -OBHECTIVE of inventory control: Achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds. - Manufacturing Inventory includes: Raw Materials, work-in process, finished products -In services, inventory refers to the tangible goods to be sold and the suppliers necessary to administer the service. 2. WHY hold inventory? – economies of scale (cycle inventory, battle fixed costs), 0guarding against uncertainties (safety), Speculation (specu- lative), Transportation (pipeline), Smoothing (seasonal), Decoupling decision-making, avoid control costs. 3 Disadvantages of holding inventory : -Expense (storage cost), -Obsolescence (out of fashion), -Delays (reduced responsiveness). 4. ABC classification: items kept in inventory are not of equal importance in terms of dollar value: ( which is calculated as price per unit x aver- age annual demand. classifying inventory according to some measure of importance and allocating control efforts accordingly. A – very important (LARGE $ value, small % of tot. items (typically contains about 10-20% of the items & 60-70% of the annual $ value)), B – Moderate, C- least (SMALL & value, large % of total items (typically contains about 50-60% of the items, but only 10-15% of the $ value)). 5. Relevant costs: - Ordering cost ( FC per order (S) [$] ) Variable purchasing cost per unit (P)[$/unit] ) – Holding costs (H) [$/unit/yr] marginal annual cost of holding inventory, the components of holding inventory include maintenance cost, taxes, insurance, opportunity cost of capital. 6. Basic EOQ model: D = Demand, P = cost per unit, Q = Order quant., S = $ of placing an order, H = Annual holding cost per unit of invent- ory. -# of orders per yr = D/Q - Ave # of inventory = Q/2 - Annual Fixed order $ = S(D/Q) - $ = PD - Annual inventory holding $ = HQ/2 - Annual Tot Cost = TC/Q = SD/Q + PD + HQ/2 EX:
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This note was uploaded on 09/08/2010 for the course BUS 140 at San Jose State.

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final1 - Ch 12 Inventory Management 1 Inventory the stock...

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