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1 IE 422 Inventory Planning Problems box4 Lecture 1 square6 Introduction: Class schedule and policies square6 The Context and Importance of Inventory Management square6 Basic Concepts 2 The Importance of Inventory Management box4 What is Inventory? box4 What is Inventory Management? square6 Why is it critical? “Inventory management can be a matter of life or death” square6 Do you agree? Why?
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3 The Importance of Inventory Management box4 A majority of organizations consider inventory control a middle/lower management responsibility square6 Cost accounting, keeping track of items box4 It is critical to set effective inventory and production policies and integrate them in company’s corporate strategy square6 E.g., For Wal-Mart inventory planning is a strategic weapon box4 Vendor Managed Inventory (VMI) 4 Inventory Management box4 Which inventory strategy/policy to apply? square6 Industry/sector square6 Product type square6 Demand characteristics square6 Data/Technology requirements/availability square6 box4 Inventory types square6 Raw material square6 Work-in-process square6 Finished goods box4 Small/Large inventory costs square6 e.g., automobile tires versus diesel engines box4 Make-to-order/Customized square6 e.g., Computers, Apparel
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5 Relationship of finance to inventory management box4 affects financial reports (balance sheet, income statement ) box4 Current ratio = Current assets/Current liabilities box4 Operating profit = Revenue – Operating expenses box4 ROI (return on investment) = Profits/Investments box4 Inventory turnover ratio = Annual sales or cost of sales / Average inventory square6 Average inventory = (Beginning inventory + Ending inventory) / 2 box4 Shows how many times inventory is used and replaced square6 E.g., Sales=$5,000, Average inventory=$20,000 box4 Low turnover rate may imply excessive inventory and poor sales box4 Compare against industry standards 6 Relationship of marketing to inventory management box4 A wide variety of products may be preferred by the marketing managers, but… box4 managing a wide variety of products can be
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