Inventory Week 1

What are the 4 main types of inventory?

1. Raw Materials (Flour, cheese); 2. WIP (Dough being prepped/oven); 3. Finished Goods (Boxed pizzas); 4. MRO (Oven cleaner, soap).

What is Safety Stock and why keep it?

Extra stock kept for uncertainty. It protects against unexpected customer spikes (Demand) or late delivery trucks (Supply).

What is Seasonality Stock?

Stocking up for a known busy time. Example: Extra wings for Super Bowl Sunday.

How does inventory appear on the two main Financial Statements?

Balance Sheet: It is an Asset (value on shelf). Income Statement: It is an Expense (COGS) only once it is sold.

Why is saving $1 on inventory better than $1 in new sales?

Leverage. You keep the whole $1 saved in inventory. In sales, you must subtract ingredients/labor, leaving you with only cents in profit.

What does Inventory Turns measure? (COGS / Avg Inventory)

How fast you empty and refill your "fridge" in a year. High number = Fresh food/fast sales; Low number = Dust/stale stock.

What is Days of Supply and how is it calculated?

How long you can survive if trucks stop coming. Formula: Current Inventory / Average Daily Usage.

What is the Cash-to-Cash Cycle?

The time gap between paying for ingredients and getting paid by the customer. Lower numbers are better for cash flow.

Which three departments fight over inventory levels?

1. Marketing (Wants more/never out); 2. Manufacturing (Wants big batches/efficiency); 3. Finance (Wants less/cash flow).

What is the difference between FIFO and LIFO?

FIFO: Oldest flour used first (matches physical flow). LIFO: Newest (expensive) used first (often used for tax benefits).

Why does incorrect year-end inventory valuation matter?

It distorts two years of profit. Ending inventory of Year 1 is the starting inventory of Year 2; errors make COGS and profit "fake news."

What is the "Goldilocks" goal of inventory management?

Balancing Customer Service (enough stock) with Low Costs (not too much stock).