Inventory Management PDF

***Management of inventory flows in the supply chain: Introduction*** - - - **[on the line: Inventory turns]** - - - - - **[Inventory in the firm: Batching economies/cycle stocks]** ***Price discounts*** -result in trade-offs between large purchases qualifying for quant...

***Management of inventory flows in the supply chain: Introduction*** - - - **[on the line: Inventory turns]** - - - - - **[Inventory in the firm: Batching economies/cycle stocks]** ***Price discounts*** -result in trade-offs between large purchases qualifying for quantity discounts and costs of storing inventory. -because physical supply inventory is often raw materials, storage costs are often less than savings from buying in bulk, so supplies are stockpiled. ***Transportation rate discounts*** -Large quantities often result in carload freight rates -Largest shipments may qualify for even lower multiple truckload, Carload or train load rates. \- Lower freight rates are often reflected in lower consumer prices. ***Production economics favor long production runs.*** -results in cycle stock that must be stored. -cycle stocks can be beneficial as long as the appropriate analysis is done to cost justify the invertory. **[Inventory in the firm: Uncertainty /safety stocks]** ***Reasons for uncertainty are commonplace.*** -net results are the same: companies accumulate safety stock to buffer themselves against uncertainty. -safety stock more challenging and complex to manage for many fims. ***Impact of information on uncertainty*** \- trade-off analysis appropiate to assess risk and measure inventory cost. \- Information technology can be used in the supply chain to reduce inventory. \- Collaborative planning and forecasting requirements (CPFR) is an example. \- Bar coding, the internet have enabled companies to reduce uncertainty. ***[Inventory in the firm: Time / In-transit and work-in-progress stocks]*** -Time-related trade-offs from using slower to faster transport modes. -faster modes cost more but may save a larger amount in inventory carrying costs. \- Work- in - process inventory should be examined for possible trade-offs especially in the production of high-value goods. -scheduling and actual production times can be closely examined to reduce inventory. **[Inventory in the firm: seasonal stocks]** -seasonality can occur on the inbound and/or outbound side of the firm\'s logistics systems. -perishable supply in agricultural products or seasonal-related transportation problems. -seasonal demand compressing selling seasons in some industries results in smaller plants producing for stock. **[Inventory in the Firm: Anticipatory Stocks]** -In some cases, companies anticipate that some forecasted event will regatively impact the production cycle. -for example, labor strikes, shortage of supplies due to weather or political went, or significant price. increases may prompt the firm to build inventory levels higher than normal. -risk assessment is important in these cases. **[Inventory in the in the firm: the importance of inventory in other functional areas.]** -marketing uses inventory to provide strong customer service. -manufacturing uses inventory to schedule longer production runs. \- finance wants inventory turnover ratios to be kept high so that of invertory loss is reduced and rate of return on assets kept competitiuly high. **[Inventory costs: Why are they so important?]** - - - **[Invertory costs: Inventory carrying cost]** - -opportunity cost associated with investing in inventory or any asset. \- what is the implicit value of having capital tied up in inventory, instead of some other worthwhile project? \- minimum ROR expected from any asset. \- debate on inventory valuation at fully allocated or variable costs only. - -handling costs, rents, utilities. \- Logistics develops a cost formula for storage space. costs based on cost behaviors. \- public space mostly variable \- private space & mix of fixed and variable **[Inventory costs: Inventory carrying cost]** **- Inventory service cost** Insurance and taxes on stored goods Varies according to the value of the goods. **- Inventory Risk cost** Largely beyond the control of the firm Due to obsolescence, damage, theft, and employee pilferage **[Inventory costs: Nature of carrying cost]** Items with basically similar carrying costs should use the same estimate of carrying cost Per dollar. - - -MIS costs for inventory stock level tracking. -preparing and processing purchase orders and receiving reports. \- Inspecting and preparing inventory for sale. - Incurred when production changes over from one product to another. **[Inventory costs: Expected stockout cost]** cost of not having product available when a customer wants it. Includes back order costs (special order). Losing one item profit by substituting a competing firm's product \- Losing a customer permanently if customer finds they prefer the substituted product and/or company. \- Possible to handle this by adding safety stock \- In a manufacturing firm, a stockout may result in lost hours of production until the item is restocked. ***[Inventory costs: Inventory in transit carrying cost]*** - - In transit carrying cost is generally less than for regular inventory because some cost components. not present. - **[Classifying Inventory: ABC Analysis]** - - - - - - - - - - **[Inventory visibility]** the ability of the firm to \"see\" inventory on a real-time basis throughout the supply chain system requires: - - -