Business Logistics Chapter 7 Part 1
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Business Logistics Chapter 7 Part 1
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43 Terms
What is inventory?
Anything that’s sitting in storage, waiting to be used or disposed. It is the buffer to deal with expected or unexpected Supply, demand, or timing issues.
What are the three categories of Product- related Inventory?
Raw materials, work-in-process, and finished goods
What are some supply problems?
Unreliable supplier
Material shortage
Natural disasters
Transportation issues
Poor quality
Incorrect Shipment
Damaged in transit
What are some Demand problems?
Seasonality
Economic factors
Natural disasters
Customer response
Regulatory issues
Product quality
Customer service
What are two key decisions in any product-based supply chain?
Where to keep the inventory and how much inventory to keep
What does a company need to maintain to fill customer order immediately?
an adequate finished product inventory
What allows a company to support manufacturing operations and the production plan while avoiding delays?
maintaining an adequate materials inventory
What are the functions of inventory?
To meet customer demand
To buffer against uncertainty in demand and/or supply (safety stock)
To decouple (separate) supply from demand
To decouple dependencies in the supply chain (strategic stock)
T or F Supply Pattern does not differ from a demand pattern
False
What are the four main categories of inventory?
Raw Materials (RM)
Work-in-Process (WIP)
Finished Goods(FG)
Maintenance, Repair and Operating Supplier (MRO)
Who holds Pipeline Inventory?
Downstream supply chain trading partners (external)
T or F Maintenance, Repair and Operating (MRO) supplies are directly related to product creation.
F
What does a company build to satisfy immediate demand?
Cycle Stock
Cycle stock depletes _______ as customer order are received, and is replenished ____ when supply orders are received
gradually, cyclically
What is safety stock known as and used for?
“buffer stock”, it is above and beyond what is actually needed to meet and anticipated demand. It protects against fluctuations in demand or supply
What is Strategic Stock used for?
a very specific purpose or future event and for a defined period of time ho W
Who are the key customers in Inventory Management?
Manufacturers (internal/external), Wholesalers, Distributors, Retailers, Consumers
What is service level?
a performance target specified by management which sets inventory performance objectives
What are some common measures of service level?
Performance Cycle (lead time)
Order fill
Line fIll rate
Case fill rate
T or F Performance cycle is the total elapsed time from order placement to order receipt
T
T or F The higher the service level target, the higher the amount of inventory you will need to assure the target is achieved
T
What are the Market Strategies?
Market Penetration
Product Development
Market Development
Diversification
What is the three step process for the application of Inventory Management Practices?
Product/Market Classification
Segmenttioun stretdy
Polices and Parameters
What does Product/Market Classification do?
groups products, markets, channels or customers with similar characteristics together to facilitate inventory management
T or F. The purpose of classification is to apply the same inventory policies to each class
F
What does Segmentation Strategy specify?
all aspects of inventory management policies for each segment of inventory
What is policies and parameters defined by at the detail level?
data requirements
software applications
performance objectives
decision guidelines
What does the segmentation strategy : ABC classification allow?
different inventory management techniques to be applied to different segments of the inventory in order to increase revenue and decrease costs.
T or F A items have the lowest priority in ABC classification
F
What are the benefits of Segmentation Strategy such as ABC?
End of Life Management - planners can forecast the declining demand and mange me stock levels accordingly
Supplier negotiation - company can prioritize and focus of negotiating with supplier of class A (IT NEEDS TO BE A WIN-WIN)
Inventory Optimization - planners can organic high property items aligned with customer requirement and inventory levels can be set to satisfy high demand items (fast moving) and carry low stock for undesirable items (slow Moving)
Strategic Pricing - helps with setting prices strategically for products which bring more value to the company, Prices for highly desirable products can be increased
Resource Allocation - a contains process requiring periodic tracking of class A items.
Customer Services Levels - allows planners to set service levels based on product classification, enhancing supply chain performance.
What is customer service level set by?
by the product, and depends on multiple factors such as item cost, demand, and margin
A quantitative decision model that minimizes the sum of annual ordering cost and annual carrying costs. It is based on the trade-off between the annual ordering cost and the annual carrying costs
When are carrying costs incurred?
each time an order is placed
Order preparation costs
order transportation costs
order receipt processing costs
material handling costs.
What is total costs driven by?
inventory planning decisions which is established by when and how much to order
What is the typical percentage for inventory carrying costs? (managerial policy)
Independent demand is for final products influenced by market conditions, while dependent demand is internal demand for parts based on the demand for final products.
What does demand greater than forecast create?
stockout