SCM 300 – MODULE 02
Module 02: Buy It
(Inventory, Purchasing, EOQ, Demand Forecasting)
Inventory is an expense, yet it is a required cost of doing business.
In order to satisfy customer expectations inventory is a requirement.
This module discussed the different types of inventory and the physical and mental processes that need to be considered in developing
an inventory policy.
How much inventory is too much?
What types of costs need to be considered?
What else needs to be
In order to develop an appropriate level of inventory supply it is required that you understand demand.
What are some of
the more basic demand forecasting models?
Pages 29-29, 41-49, 52-53
Pages 117-131, 165-172, 175-178
Introduction to Inventory – Slides 02-11
What is inventory?
Why do companies need inventory?
Inventory is your insurance against risk at every stage of the SC
It is the “IT” (buy it, make it, move it, sell it, service it)
It is not just what you sell, includes what you need to run a business day-to-day (ex: office paper)
There are RM, WIP, and FG
There are Spare and/or replacement parts
do not sell this
There is capital equipment and Maintenance, repair and operations
We need it for 3 reasons
1. insurance- manage risk/uncertainty
Do this for risks such as breakdowns, accidents, weather, defects, strikes, etc.
These risks (and more) occur at the buy it, make it, move it, sell it, service it levels
2. customer expectations- support strategic plan
In some industries, companies want to have a large amount of inventory on hand for our
convenience (ex: Wal-Mart, target, home depot)
Your suppliers lead time may be too log to compete w/o inventory
Also consider perishable and seasonal items
3. managing cost- economies of scale
Quantity discounts- lower purchase could offset other inventory related costs
Manufacturing- some items are make in batches, making them as needed wouldn’t be
economical (like cookies)
Maximize capabilities, minimize cost
What are some things to consider when purchasing inventory?
Also, what are some costs associated with
You should consider
Storage- space heat/cool environment, energy requirement, labor, handling, buy/lease, cost
Ex: you would not buy 365 bottles of water because then you would need an entire room
to store all of the water
Also, the more you have, the more you use, if you have less you become resourceful
Transport- vehicle, cool/heat, fuel, labor, packing, cost
Shrinkage- pilferage, security, lost items, damaged, obsolescence (inventory getting smaller)
Other Inventory needs- what else do we hold in inventory?
Do we have enough room for
everything we typically carry?
Money- cash, financing terms, taxes, insurance