Quantity and Inventory Management - Chapter 9

Vocabulary terms and definitions related to quantity and inventory management, covering inventory categories, costs, ABC analysis, and JIT systems.

Traditional approach (Inventory)

Seeks a balance between a large inventory capable of continuously providing needs, and a small inventory keeping costs as low as possible.

Contemporary management philosophy

The belief that efficient management of the supply pipeline may obviate the need for inventories altogether.

MRO inventories

Maintenance, repair and operations inventories.

Processing inventories

Work-in-progress inventory items.

Inventory-holding (carrying) costs

Costs including financing, storage (space), handling, insurance, and technical or economic depreciation of inventory.

Capital costs

The cost of financing inventory, whether by interest paid on borrowed capital or interest lost on equity.

Ordering costs

Administrative costs for placing the order, follow-up costs, costs of receipt and quality control, as well as payment of the supplier’s invoice.

Stock-out costs

Difficult-to-calculate costs of inventory shortages, including lost orders, customer goodwill, and disruptions to planned production schedules.

ABC analysis

A technique primarily aimed at providing management with information on the importance of different inventory items in terms of monetary value.

Class A inventory

A category of inventory representing approximately $10\%$ of the items but $70\%$ of the annual demand value in rand.

Class B inventory

A category of inventory representing approximately $20\%$ of the items and $20\%$ of the annual demand value in rand.

Class C inventory

A category of inventory representing approximately $70\%$ of the items but only $10\%$ of the annual demand value in rand.

Just-in-time (JIT) system

A product-orientated management philosophy designed to eliminate inventories of raw materials, work in process, and final products by coordinating purchasing with manufacturing and consumer demand.

Kanban

An information system perfected by Toyota in Japan to operate the JIT system, using standard containers and cards to authorize movement and production.

m-kanban

A movement card used in the Kanban system for the movement of standard containers.

p-kanban

A production card used in the Kanban system for authorizing production processes.

Symptoms of poor inventory management

Indicators such as an increase in outstanding orders, excessive inventory-holding costs, more out-of-stock occurrences, and an increase in obsolete inventory.