Ch 12 - Part 1

Ch 12 Part 1 - Chapter12.InventoryManagement XunLi LearningObjectives 1 Introduction 1 TypesofInventory 2 3 2 1 (EOQ 2

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Chapter 12. Inventory Management Xun Li
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2 Learning Objectives 1) Introduction 1) Types of Inventory* 2) Objectives of Inventory Management 3) Relevant Inventory Costs** 2) Mathematical model to determine order quantity 1) Economic Order Quantity (EOQ) *** 2) Economic Production Quantity (EPQ) *** 3) Quantity Discount Model*** 3) ABC inventory classification**
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LO1:  Introduction 3
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LO1:  Introduction Types of Inventory (pp.417) Raw materials Purchased items or extracted materials transformed into  components or products Components Parts or subassemblies used in final product Work-in-process (WIP) Items in process throughout the plant Finished goods (F/G) Products sold to customers Distribution inventory Finished goods in the distribution system 4
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LO1:  Introduction Types of Inventory (pp.418) Anticipation inventory (seasonal inventory) Inventory built in anticipation of future demand, planned  promotional programs, seasonal fluctuations, plant  shutdowns, and vacations. Fluctuation Inventory (Safety stock; Buffer) Inventory being carried as a cushion to protect against  possible demand variation. Lot-size or cycle stock Take advantage of quantity discounts or purchasing  efficiencies 5
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LO1:  Introduction Types of Inventory (pp.418) Transportation or Pipeline inventory Inventory in movement between locations Speculative or hedge inventory Inventory that are used to protects against some  future event, e.g. labor strike Maintenance, repair, and operating (MRO)  inventories Items used in support of manufacturing and  maintenance. 6
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LO1:  Introduction Objectives of Inventory Management Customer Service Customer service is the ability to satisfy customer  requirements Cost-efficient operations Buffer stock for smooth production flow Maintain a level work force discounts Minimum inventory investments Inventory turnover Weeks, days, or hours of supply DIS 300 - Milton Shen 7
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LO1:  Introduction Relevant Inventory Costs 1. Item Cost (Out-of-Pocket Cost) For a purchased item:  the price paid for the item  and any other direct costs (e.g. transportation/  insurance/ duty/ tax) For a manufactured item     Direct material +  Direct labor +  Overhead 8
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LO1:  Introduction Relevant Inventory Costs 2. Holding Cost The variable expenses incurred by the firm for the volume of  inventory held Capital Cost :  The higher of the following Cost of capital:  The interest rate the company pays to 
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This note was uploaded on 10/17/2011 for the course MNGT 368 taught by Professor Curthurds during the Spring '08 term at Nicholls State.

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Ch 12 Part 1 - Chapter12.InventoryManagement XunLi LearningObjectives 1 Introduction 1 TypesofInventory 2 3 2 1 (EOQ 2

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