Chapter 6 supply chain - C hapter 7 Understanding I...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 7: Understanding Inventory Fundamentals 1. Types and roles of inventory a. Inventory: supply of items held by a firm to meet demand b. Raw materials and components parts: items that are brought from suppliers to use in the production of a product c. Work in process inventory: inventory that is in the production process d. Finished goods inventory: items that are ready to sale to the customer e. MRO inventory: items included everything from office supplies and forms, to toilet paper and cleaning supplies to tools and parts needed to repair machines. f. Transit inventory: items being transported from one location to another. i. When inventory is in transit, inventory can’t meet an organizations need 2. The roles of inventory a. Balancing supply and demand: decouples differences in supply and demand requirements i. Inventory is used to satisfy demand for a product when it is not being produce ii. Inventory allows a firm to deal efficiently with seasonality of supply and demand 1. Ex. Of Potato framer b. Buffers against uncertainties: variation in supply and demand are managed with buffer (safety) stock
Image of page 1

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

View Full Document Right Arrow Icon
i. Companies frequently hold extra inventory to meet unexpected demand or delays in replenishment ii. Buffer stock: extra inventory held to guard against uncertainty in demand. c. Economies: price discounts or reduced shipping costs i. Suppliers offer price discounts to encourage customer to purchase larger quantities ii. Buying in large quantity may result in economies associated with dealing with transporting larger quantities at a time d. Geographic Specialization: supply and demand locations vary i. Certain locations hold inventory in distribution centers near major customer demand zones located around the world. ii. Inventory must be stored in such centers to quickly meet the demand of customer in different locales. 3. The Financial Impact of Inventory a. It is an asset on the firm’s balance sheet as well as cost impacts the profitability of any firm b. Maintaining inventory costs money on an on-going basis.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern