Podcast
Questions and Answers
Inventory management is the branch of ______ management.
Inventory management is the branch of ______ management.
business
Which of these is NOT considered a benefit of holding inventory?
Which of these is NOT considered a benefit of holding inventory?
Inventory can be classified by location as raw materials, semi-finished goods, finished goods, and work-in-process (WIP).
Inventory can be classified by location as raw materials, semi-finished goods, finished goods, and work-in-process (WIP).
True
The term ______ refers to the amount of inventory which gets sold and the frequency of its sale.
The term ______ refers to the amount of inventory which gets sold and the frequency of its sale.
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An operations strategy is created directly from the ______ strategy.
An operations strategy is created directly from the ______ strategy.
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What type of inventory is used in support of general operations and maintenance, such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations?
What type of inventory is used in support of general operations and maintenance, such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations?
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Inventory turnover refers to the amount of inventory which gets sold and the frequency of its sale.
Inventory turnover refers to the amount of inventory which gets sold and the frequency of its sale.
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Excessive inventory levels can lead to lower operational efficiency and higher profitability.
Excessive inventory levels can lead to lower operational efficiency and higher profitability.
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Which of the following costs is NOT typically considered a part of ordering costs?
Which of the following costs is NOT typically considered a part of ordering costs?
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Which of these is NOT considered a factor affecting the level of inventory?
Which of these is NOT considered a factor affecting the level of inventory?
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What is the optimal quantity of inventory to order, as determined by the EOQ model?
What is the optimal quantity of inventory to order, as determined by the EOQ model?
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What is the total annual cost if the EOQ quantity is ordered?
What is the total annual cost if the EOQ quantity is ordered?
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What is the economic production quantity?
What is the economic production quantity?
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What is the main concern of the maintenance department of a large hospital in terms of inventory?
What is the main concern of the maintenance department of a large hospital in terms of inventory?
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Study Notes
Inventory Management
- Inventory management is a crucial aspect of business operations, targeting to optimize resource use, minimizing costs, and maximizing operational efficiency and profitability.
- Inventory management involves planning and controlling inventory levels to meet customer demand while minimizing costs.
- Inadequate control of inventory can lead to missed sales, dissatisfied customers, and excessive capital tied up in inventory.
- Efficient inventory management balances inventory levels to prevent stockouts while controlling costs.
Definition of Inventory
- Inventory refers to the stock of materials in an organization, whether for sale or in the manufacturing process.
- Inventories can be raw materials, semi-finished goods, or finished goods.
- Inventories play a critical role in reducing interdependencies across production and delivery stages.
Functions of Inventory
- Inventory supports anticipated customer demand, acting as a buffer against fluctuations in demand.
- It smooths production requirements by allowing companies to maintain production levels during seasonal downturns or anticipated increases.
- Inventory acts as a buffer between different stages of production, allowing each stage to operate independently, ensuring continuity.
- Inventory safeguards against stockouts by providing a safety margin to accommodate increased demand or delays in supply.
- Inventory enables companies to purchase or produce materials in economic lot sizes without perpetually matching demand with current production.
- Inventory enables businesses to leverage price discounts by buying in bulk and hedge against potential future price increases.
- Inventory enables organizations to operate smoothly by mitigating delays between stages in the production process.
Types of Inventory
- Raw materials: Unprocessed inputs for manufacturing
- Semi-finished goods: Partially processed materials in various stages of production
- Finished goods: Complete products ready for sale
- Work-in-process (WIP): Materials in progress through the manufacturing stages
- Maintenance, repair, and operations (MRO): Resources used in production processes, but not part of the final product
Inventory Costs
- Holding costs: Costs associated with storing inventory (e.g., warehousing, insurance, taxes, obsolescence)
- Ordering costs: Costs associated with procuring inventory (e.g., order processing, receiving, inspection)
- Storage costs: Cost when demand exceeds supply, including opportunity cost from lost sales.
Inventory Control Techniques
- ABC Analysis: Categorizes inventory items based on their annual consumption value (high value items require more stringent control).
- HML Analysis: Categorizes inventory items based on price (high-value items receive higher attention).
- VED Analysis: Categorizes inventory items based on their criticality (vital, essential, desirable).
- FSN Analysis: Categorizes inventory items based on their consumption rate (fast-moving, slow-moving, non-moving).
- GOLF Analysis: Categorizes inventory items based on their sources (Government, Ordinary, Local, Foreign).
- SOS Analysis: Classifies inventory by the seasonality of its supply.
Inventory Models
- Economic Order Quantity (EOQ) model: Determines the optimal order quantity for inventory to minimize total costs (holding and ordering).
- Economic Production Quantity (EPQ) model: Calculates the optimal production quantity to minimize the total cost of inventory where a firm both produces and uses an item.
Requirements for Effective Inventory Management
- Robust inventory tracking system
- Accurate demand forecasting
- Knowledge of lead time for production or supply
- Understanding of inventory holding costs, ordering costs, and shortage costs
- Clear inventory classification method
Results of Inadequate Inventory Control
- Missed deliveries, lost sales, customer dissatisfaction
- Excessive capital tied in inventory
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