TOM 3010 Exam 3

Inventory management

Process of ordering, storing, and using inventory to meet demand while minimizing costs

Objectives of inventory management

Ensure availability, minimize costs, maintain efficiency

Inventory categories

Raw Materials (RM), Work-in-Process (WIP), Finished Goods (FG)

Forecasting (inventory context)

Predicting demand to determine how much inventory to hold

Product data tracking

Monitoring inventory movement using systems/technology

RFID tags

Technology used to track inventory electronically

Reasons for carrying inventory

Meet demand, avoid stockouts, handle uncertainty

Safety stock

Extra inventory kept to prevent stockouts

Uncertain demand

Demand that cannot be predicted exactly

Days of supply

Number of days current inventory will last

Average inventory

Average inventory level over a period (found in financial reports)

Inventory turns

Number of times inventory is sold and replaced in a period

Stockout

When inventory runs out

Backorder

Order fulfilled later due to stockout

Holding costs

Costs of storing inventory (storage, insurance, damage, opportunity cost)

Cycle stock

Inventory used to meet expected (normal) demand

Service level

Probability of not having a stockout

Lead time

Time between placing and receiving an order

Reorder point

Inventory level at which a new order is placed

Demand variability

Fluctuation in customer demand over time

Lead time variability

Variation in delivery time from suppliers

Stockout cost

Costs associated with running out of inventory (lost sales, reputation)

Carrying cost

Another term for holding cost

Ordering cost

Cost of placing and receiving inventory orders

Shrinkage

Loss of inventory due to theft, damage, or errors

Demand forecasting

Predicting future customer demand

Time series forecast

Forecast based on past data over time

Forecast error

Difference between actual and forecasted demand

Biased forecast

Consistently over- or under-predicts demand

Unbiased forecast

Errors cancel out with no consistent pattern

Naïve forecast

Uses last period's demand as next forecast

Moving average

Average of recent periods used to forecast demand

Trend

Long-term upward or downward movement in data

Mean Absolute Deviation (MAD)

Average of absolute forecast errors

Tracking signal

Measures whether a forecast is biased over time

Smoothing

Reducing random variation in data

Weighted moving average

Moving average where some periods count more than others

Exponential smoothing

Forecasting method that weights recent data more heavily

Seasonality

Regular pattern that repeats over time (e.g., holiday demand)

Random variation

Unpredictable fluctuations in demand

Overfitting

Model fits past data too closely and performs poorly on new data

Underfitting

Model too simple to capture patterns

Dependency matrix

Table showing relationships between tasks

Predecessor

Task that must be completed before another begins

Successor

Task that follows another task

Independent tasks

Tasks that do not depend on each other

Sequential dependency

Tasks that must be completed in order

Interdependent tasks

Tasks that rely on each other

AON graph

Diagram showing tasks (nodes) and dependencies (arrows)

Critical path

Longest path of tasks determining project duration

Slack time

Time a task can be delayed without delaying the project

Gantt chart

Visual timeline of project tasks

Padding

Adding extra time to tasks to reduce risk

Project management objectives

Complete project on time, within budget, within scope

Crashing

Shortening project duration by adding resources

Project control

Monitoring and adjusting project progress

Project scope

Defined boundaries and deliverables of a project

PERT formula

Weighted average formula using optimistic, most likely, and pessimistic times

Earliest start (ES)

Earliest time an activity can begin

Earliest finish (EF)

Earliest time an activity can be completed

Latest start (LS)

Latest time an activity can begin without delay

Latest finish (LF)

Latest time an activity can finish without delay

Forward pass

Process to calculate ES and EF

Backward pass

Process to calculate LS and LF

Float

Another term for slack time

Critical activities

Activities on the critical path (zero slack)

Project duration

Total time required to complete the project

Bottleneck

Task that limits overall project speed

Fast tracking

Doing tasks in parallel to speed up project

Risk in project management

Potential events that can delay or impact the project

Milestone

Significant point or event in a project timeline

Resource allocation

Assigning people/materials to tasks

Scope creep

Uncontrolled expansion of project scope

Optimistic time (O)

Shortest possible completion time

Most likely time (M)

Most realistic estimate

Pessimistic time (P)

Longest possible completion time

Expected time (TE)

Weighted average using PERT formula

Variance (PERT)

Measure of uncertainty in activity time

Standard deviation (PERT)

Square root of variance

SOPs

Standard Operating Procedures; step-by-step instructions for tasks

Trade-off

Balancing cost, time, and performance

Efficiency

Doing something with minimal waste

Effectiveness

Doing the right thing (meeting goals)

Buffer

Extra time or inventory to handle uncertainty

Throughput

Rate at which products are produced or sold