Inventory Final

What is inventory?

Quantities of goods in stock. Both manufacturing and service organizations carry inventory

What are raw materials?

Items delivered from suppliers before entering production

What is work-in-process (WIP) inventory?

Inventory that has entered the production process

What are finished goods?

Inventory that results after the production process is completed

 What are supplies and equipment in inventory?

Items used to support operations, also considered part of inventory

What is service inventory?

Tangible goods that support service delivery, items sold as part of the service, and even service personnel whose skills define services offered

Can finished services be stored in inventory?

No, but steps performed before the customer arrives (stored work) are considered part of service inventory

What are the five reasons for carrying inventory?

1. Protect against lead time demand
   
   

2. Maintain independence of operations
   
   

3. Balance supply and demand
   
   

4. Buffer uncertainty
   
   

5. Economic purchase orders

What is cycle stock?

Also known as lot size inventory — inventory used to satisfy regular demand 

 What is safety stock?

Also called buffer stock — extra inventory held to prevent stockouts due to uncertainty

What is anticipation inventory?

Inventory built up in anticipation of future demand increases

 What is pipeline inventory?

Also known as transportation inventory — inventory in transit between locations

What is MRO inventory?

Maintenance, Repair, and Operating items — inventory used to support production and operations

What are the three main types of inventory cost?

Holding cost:Includes all the costs that vary with the amount of inventory held in stock

-Sometimes called carrying costs

-Typically described as a percentage of the value of the inventory

Ordering cost: Includes all the costs involved in placing an order and procuring the item

-Sometimes called setup cost

Shortage cost: occur when we run out of stock

-It is hard to estimate true shortage cost and the impact of the shortage on customer behavior

What is an inventory policy? 

Guidelines that determine when to replenish inventory and how much to order

What is a fixed-order quantity system?

An inventory system where a fixed amount is ordered when inventory drops to a specific reorder point. Requires continuous monitoring

What is a fixed-time period system?

Inventory is reviewed at regular intervals, and orders vary in size to bring stock up to a target level. No continuous tracking needed

What are the key differences between fixed-order quantity and fixed-time period systems?

• Fixed-order quantity: Continuous review, fixed amount, order when needed
  
  

• Fixed-time period: Periodic review, variable amount, order at regular intervals

What is EOQ (Economic Order Quantity)?

The order quantity that minimizes total inventory cost (Look at formula)

What is the reorder point (ROP)?

Inventory level at which a new order is placed (Look at formula)

Safety stock

Extra inventory to protect against uncertain demand or lead time

How do you calculate total inventory cost?

 Total Cost = Ordering Cost + Holding Cost (Look at formula)

How do you calculate order quantity in a fixed-time period system?

 Order Quantity = Target Inventory Level – Inventory on Hand

What is independent demand?

Demand for finished goods or end items. Must be forecasted

What is dependent demand? 

Demand for components or subassemblies driven by demand for finished products

-Dependent demand is derived from its independent demand

What is ABC inventory classification?

 Categorization based on importance and usage value:

• A items: High value, tight control
  
  

• B items: Moderate value, periodic review
  
  

• C items: Low value, simple controls
  

What are the types of inventory?

• Raw materials and component parts: Delivered from suppliers.
  
  

• Work-in-process (WIP): Inventory that has entered the production process.
  
  

• Finished goods: Inventory after the production process is completed.
  
  

• Supplies and equipment: Used to support operations.
  

Types of Inventory:

Cycle stock (a.k.a. lot size inventory)

Safety stock (a.k.a. buffer stock)

Anticipation inventory

Pipeline inventory (a.k.a. transportation inventory)

Maintenance, repair, and operating items (MRO)

Bill of Materials

The relationship between independent and dependent demand is shown in

material requirements planning

(MRP)

Dependent demand order quantities are computed using a system called

enterprise resource planning

(ERP)

When MRP links to internal and external members of the supply chain, it is