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SCm303 Chapter 7 slides - SCM 303 Fundamentals of...

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Michigan State University, 2010 - 1 - SCM 303 SCM 303 Fundamentals of Inventory Fundamentals of Inventory
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Michigan State University, 2010 - 2 - Supply Chain Management and Inventory Management A major emphasis over the past two decades has been placed on reducing the amount of inventory There are many who argue that having inventory is “bad” Their reasoning is based on the financial implications of holding inventory
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Michigan State University, 2010 - 3 - Types of Inventory Raw materials/Component Parts Work-in-process Finished goods Maintenance, repair, and operating supplies (MRO) Transit Inventory
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Michigan State University, 2010 - 4 - Balance Supply and Demand Seasonality Production Processes Provide Buffer against Uncertainty/Variability in Supply and/or Demand (Buffer/Safety Stock) Basic Economics of Buying Geographic Specialization So, Why Carry Inventory?
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Michigan State University, 2010 - 5 - Financial Implications of Inventory Inventory represents investment by the firm It is an asset on the firm’s balance sheet Companies typically desire to keep their investment in assets as low as possible Maintaining inventory costs money on an on- going basis. Thus, inventory also causes expenses to be incurred These expenses show up on the firm’s income statement However, not having inventory when customers want it results in negative financial consequences as well
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Michigan State University, 2010 - 6 - Cost of capital (opportunity cost) Cost of owning and maintaining storage space Taxes
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