Inventory Management


  • four types of inventory 
    • raw materials, components and supplies 
    • work in process 
    • finished goods 
    • repair and replacement parts 
  • functions of inventory 
    • the primary functions of inventory are to 
      • buffer from uncertainty in the marketplace and 
      • decouple dependencies in the supply chain 
      • to allow flexibility in production scheduling 
      • to take advantage of economic purchase-order size 
  • inventory costs 
    • inventory stacks of your money sitting there without paying you anything 
      • inventory is often not very liquid 
    • average cost of inventory in the United States is 30-35% of its value 
      • obselence, insurance 
  • types of inventory costs 
    • holding ( or carrying) costs 
      • costs for storage, handling, insurance, and so on 
    • Setup ( or production change) costs 
      • costs for arranging specific equiptment setups, and so on 
    • ordering costs 
      • costs of placing an order 
    • shortage costs 
      • costs of running out 
  • inventory managment 
    • the goal of inventory managment: 
      • get inventory down as far as possible 
      • avoid stockouts 
    • inventory control 
      • the set of policies and controls that monitor levels of inventory and determines 

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