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

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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
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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. 4.
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This note was uploaded on 05/25/2011 for the course SCM SCM 100 taught by Professor Jones during the Spring '11 term at Michigan State University.

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

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