Inventory Management Concepts

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Questions and Answers

What is the formula for calculating inventory turns?

Turns = R/I

What is the formula for calculating days of supply?

I = RxT

What is the formula for calculating queue growth rate?

Queue growth rate = demand - capacity.

What is the formula for calculating length of queue at time (T)?

<p>Length of queue at time (T) = T x (Demand - Capacity).</p> Signup and view all the answers

What is the formula for calculating time to serve the Qth customer in the queue?

<p>Time to serve the Qth customer in the queue = Qth / Capacity.</p> Signup and view all the answers

What is the formula for calculating time to serve the customer arriving at time (T)?

<p>T x [ (Demand / Capacity) - 1 ].</p> Signup and view all the answers

What is the formula for calculating the average waiting time in a queue?

<p>.5 x T x [(demand / capacity) - 1].</p> Signup and view all the answers

What are the types of forecasts that are made for multiple years?

<p>Long term forecasts (A)</p> Signup and view all the answers

What are the types of forecasts that support decisions made for short periods of time ranging from daily to the monthly level?

<p>Short term forecasts (C)</p> Signup and view all the answers

What are the types of forecasts that drive capacity-related decisions, made from the monthly level to the yearly level?

<p>Mid term forecasts (C)</p> Signup and view all the answers

What are the three types of forecasting applications in business?

<p>Short-term, Mid-term, and Long-term (B)</p> Signup and view all the answers

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Flashcards

Days-of-Supply

The average amount of time (in days) it takes for a unit to flow through the inventory system.

Days-of-Supply Formula

The formula for calculating days-of-supply is I = R x T, where I represents inventory, R represents flow rate, and T represents time.

Inventory Turns

The number of times the average inventory flows through the process in a designated interval of time.

Inventory Turns Formula

Formula for calculating inventory turns: Turns = R/I, where R represents the flow rate and I represents the inventory.

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Forecasting

The process of creating statements about the outcomes of variables that are uncertain and will be realized in the future.

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Demand Forecasting

The process of creating statements about the future realization of demand for a particular product or service.

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Time Series Analysis

Analyzing past (demand) data to identify patterns and trends that can be used to forecast future demand.

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Time Series-Based Forecast

A forecast that is obtained based solely on past (demand) data.

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Extrapolation

Estimating values beyond the range of the original observation by assuming that patterns within the range will continue outside the range.

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Regression Analysis

A statistical process for estimating the relationship between a dependent variable and multiple independent variables that influence it.

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Dependent Variable

The variable that is being studied or predicted in regression analysis.

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Independent Variable

Variable that influences the dependent variable in regression analysis.

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Expert Panel Forecasting

Forecasts generated using the subjective opinions of management or experts.

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Forecast Error

The difference between a forecasted value and the actual realized value.

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Unbiased Forecast

A forecast that is correct on average, meaning the average forecast error is zero.

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Biased Forecast

A forecast that is incorrect on average, meaning the average forecast error is not zero.

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Mean Squared Error (MSE)

A measure of forecast quality that looks at the average squared forecast error.

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Mean Absolute Error (MAE)

A measure of forecast quality that looks at the average absolute value of the forecast error.

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Queue Growth Rate

The rate at which a queue grows when demand exceeds capacity.

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Length of Queue at Time (T)

The length of a queue at a particular time (T) is calculated as T x Queue Growth Rate, which is equal to T x (Demand - Capacity).

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Qth Customer

The specific customer that is being served in a queue.

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Time to Serve Customer

The time it takes to serve a customer in the queue.

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Time to Serve Qth Customer in Queue

The time it takes to serve the Qth customer is Qth / Capacity.

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Time to Serve Customer Arriving at Time (T)

The amount of time it takes to serve a customer arriving at time (T).

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Average Waiting Time

The average waiting time for a customer to be served in a queue.

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Study Notes

Inventory Management

  • Measuring Average Inventory: Inventory is measured in pesos, days-of-supply, and turns.

  • Days-of-Supply: This is the average time (in days) a product takes to flow through the system. The formula is I = RxT, where I = inventory, R = flow rate, and T = time.

  • Inventory Turns: This measures how many times the average inventory moves through the process in a given time period. The formula is Turns = R/I, where R = flow rate, and I = inventory. This can also be calculated using the cost of goods sold (COGS) in annual financial reports.

  • Forecasting: This is the process of predicting future outcomes of uncertain variables. This is used for profit, demand forecasting, and time series analysis.

  • Demand Forecasting: This involves creating predictions about future demand.

  • Time Series Analysis: Analyzing historical data (demand) to forecast future trends.

Inventory Turns (Using Financial Reports)

  • Example: Vintage Industries has annual sales of P160 million, cost of goods sold (COGS) of P120 million, inventory of P20 million, and net income of P5 million. Their annual inventory turns are 6 per annum (120,000,000/20,000,000).

Forecasting

  • Process: Creating statements about future outcomes of currently uncertain variables.

  • Variables: Profit, demand are examples of variables that are included in forecasting.

  • Types: Short-term (daily to monthly), Mid-term (monthly to yearly), and Long-term (multiple years) forecasts are needed for various business decisions.

Demand Forecasting

  • Process: Predicting future demand levels.

Time Series Analysis

  • Process: Analyzing past data to predict future demand.

Queue Growth Rate

  • Definition: The rate at which a queue (waiting line) grows if demand exceeds capacity.

  • Formula: Queue growth rate = demand - capacity.

Length of Queue at Time

  • Formula: Length of queue at time (T) = T x queue growth rate = T x (Demand - Capacity)

Time to Serve Customers

  • Calculation: Specific time the particular customer must be served = Qth / Capacity.
  • Examples of the formula provided.

Average Waiting Time

  • Formula: Average time to serve a customer = .5 x T x [(demand / capacity) - 1].
  • Example of the formula provided.

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