Operations Management - Chapter 12 Lecture - Inventory Management

Flashcards for Operations Management - Inventory Management

Inventory

Any asset held for future use or sale.

Inventory management

Planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, equipment or maintenance, repair items and replacement parts.

Raw materials, component parts, subassemblies, and supplies

Inputs to manufacturing and service-delivery processes.

Work-in-process (WIP) inventory

Partially finished products in various stages of completion that are awaiting further processing.

Finished-goods inventory

Completed products ready for distribution or sale to customers.

Environmentally preferable purchasing (EPP) or green purchasing

The affirmative selection and acquisition of products and services that effectively minimize negative environmental impacts over their life cycle.

Ordering or setup costs

Costs incurred when placing orders with suppliers.

Inventory-holding costs

Costs associated with carrying inventory.

Shortage or stockout costs

Costs associated with inventory being unavailable to meet demand.

Stock-keeping unit (SKU)

A single item or asset stored at a particular location.

Independent demand

Demand for an SKU that is unrelated to the demand for other SKUs and needs to be forecasted.

Dependent demand

Demand directly related to the demand of other SKUs and can be calculated without needing to be forecasted.

Static demand

Demand that remains stable over time.

Dynamic demand

Demand that varies over time.

Lead time

The time between placement of an order and its receipt.

Stockout

The inability to satisfy the demand for an item.

Backorder

Occurs when a customer is willing to wait for an item.

Lost sale

Occurs when the customer is unwilling to wait and purchases the item elsewhere.

ABC inventory analysis

A method for defining inventory value based on an application of the Pareto principle.

Fixed-quantity system (FQS)

Features a fixed order quantity or lot size.

Inventory position (IP)

The on-hand quantity plus any orders placed that have not arrived (scheduled receipts, SR), minus any backorders (BO).

Reorder point

The value of the IP that triggers a new order.

Economic order quantity model (EOQ)

A classic economic model that minimizes the total cost, which is the sum of the inventory-holding cost and the ordering cost.

Cycle inventory

Inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale.

Safety stock

Additional, planned on-hand inventory that acts as a buffer to reduce the risk of a stockout.

Service level

The desired probability of not having a stockout during a lead-time period.

Fixed-period system (FPS)

Inventory position is checked only at fixed intervals of time, T, rather than continuously.

Cost per item of overestimating demand (salvage cost)

The loss of ordering one additional item and finding that it cannot be sold.

Cost per item of underestimating demand (shortage cost)

The opportunity loss of not ordering one additional item and finding that it could have been sold.