file01 - 1 IE 422 Inventory Planning Problems Lecture 1...

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1 IE 422 Inventory Planning Problems b Lecture 1 s Introduction: Class schedule and policies The Context and Importance of Inventory Management Basic Concepts 2 The Importance of Inventory Management What is Inventory? What is Inventory Management? Why is it critical? “Inventory management can be a matter of life or death” Do you agree? Why?
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3 The Importance of Inventory Management b A majority of organizations consider inventory control a middle/lower management responsibility s Cost accounting, keeping track of items It is critical to set effective inventory and production policies and integrate them in company’s corporate strategy E.g., For Wal-Mart inventory planning is a strategi c weapon Vendor Managed Inventory (VMI) 4 Inventory Management Which inventory strategy/policy to apply? Industry/sector Product type Demand characteristics Data/Technology requirements/availability Inventory types Raw material Work-in-process Finished goods Small/Large inventory costs e.g., automobile tires versus diesel engines Make-to-order/Customized e.g., Computers, Apparel
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5 Relationship of finance to inventory management b affects financial reports (balance sheet, income statement ) Current ratio = Current assets/Current liabilities Operating profit = Revenue – Operating expenses ROI (return on investment) = Profits/Investments Inventory turnover ratio = Annual sales or cost of s ales / Average inventory s Average inventory = (Beginning inventory + Ending i nventory) / 2 Shows how many times inventory is used and replaced E.g., Sales=$5,000, Average inventory=$20,000 Low turnover rate may imply excessive inventory and poor sales Compare against industry standards 6 Relationship of marketing to inventory management A wide variety of products may be preferred by the marketing managers, but… managing a wide variety of products can be difficult Low-volume demands Difficult to forecast Increased setups Needs flexible workers and equipment Higher inventories
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file01 - 1 IE 422 Inventory Planning Problems Lecture 1...

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