Inventory Management Strategies and Costs

These flashcards cover key concepts related to inventory management strategies, costs, and decision-making processes.

What is the main purpose of holding inventory in businesses?

To avoid stockouts while managing working capital efficiently.

What are the four main inventory cost buckets?

Capital cost, storage space, service, and risk.

What does EOQ stand for and what does it aim to balance?

Economic Order Quantity; it balances ordering costs versus carrying costs.

What does Reorder Point (ROP) signify?

The point at which an order should be placed based on demand during lead time.

What is the difference between Push and Pull inventory systems?

Push systems plan/replenish to forecast, while Pull systems are order-driven and rely on immediate demand.

What is Just-in-Time (JIT) inventory management?

JIT aims for minimal inventories with short and reliable lead times.

What is the purpose of safety stock?

To buffer against demand and lead-time uncertainty.

Under uncertainty, how is ROP calculated?

ROP = demand during lead time + safety stock.

What does ABC analysis help organizations do?

Focus control on the most critical inventory items based on value contribution.

What is the Square-root rule used for in inventory management?

To estimate changes in safety stock when consolidating facilities.

What is a key tradeoff that must be considered in inventory management?

Transport vs inventory costs.

What are the three types of stock in relation to production and supply?

Cycle stock, seasonal stock, and anticipatory stock.

Which factors drive the decision of how much to order or when to order inventory?

Demand forecasts, lead time, and service level requirements.

What is one of the critical aspects of Order Quantity under the EOQ model?

It should be fixed and based on certainty of demand.

What practical approach helps management tailor inventory control policies?

Using the quadrant model to classify items based on value contribution and supply risk.