Chapter 4 part 1

Internal Inventory

-Strategic -Safety -Cycle

Inventory Management

-The function of planning and controlling inventories -The goal of inventory management is to help a company be more profitable by lowering the cost of goods sold and/or by increasing sales.

Introduction to Inventory Management

-a key decision in any product-based supply chain is how much inventory to keep on hand. -usually one of the company's largest assets, so careful management of that asset is an essential business requirement.

Maintain adequate

-finished product inventory= fill customer orders immediately -materials inventory=support manufacturing operations

Why carry strategic stock

-hedge currency fluctuations -take advantage of a price discount -protect against a short-term disruptive event in supply -take advantage of a business opportunity -for life cycle changes: seasonal demand, new product launch, transition protection -Also called anticipation stock, build stock, or seasonal stock

Holding some inventory may be necessary to

-maintain operations -ensure that products are available

Categories of Inventory

-raw materials -work in process -finished goods -maintenance, repair and operating (MRO) supplies

Failing to manage inventory adequately can lead to

-significant issues and inefficiencies -dissatisfied customers -lost sales and revenue -higher costs

Work In Process

A good or goods in various stages of competition throughout the plant, spanning from raw material that has been released for initial processing up to fully processed material awaiting final inspection and acceptance as finished goods.

Service Inventory

Activities carried out in advance of the customer's arrival Companies in the service industry do not maintain inventory of services since services are basically produced and consumed immediately upon demand. Companies can however, maintain inventory of "facilitating goods," which are those items that are used to help facilitate the service being provided.

Strategic Stock

Additional inventory beyond cycle and safety stock, generally used for a very specific purpose or future event, and for a defined period of time.

Pipeline Inventory

Inventory in the transportation network and the distribution system. Inventory that is already out in the market being held by wholesalers, distributors, retailers, and even consumers. The ownership of this inventory has been transferred to the trading partners, but may still influence decisions the company makes regarding how they manage and control their internal inventory, and how much safety stock and/or strategic stock to hold.

Obsolete Inventory

Inventory items that have met the obsolescence criteria established by the company. is stock that is expired, damaged, or no longer needed. will never be used or sold at full value

Cycle Stock

Inventory that a company builds to satisfy its' immediate demand Cycle stock depletes gradually as customer orders are received, and is replenished cyclically when supply orders are received. The amount of cycle stock that a company holds is dependent on actual demand in the immediate time period, supply replenishment lead time and order quantities.

Maintenance, Repair and Operating (MRO)

Items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations. Materials that you need to run the manufacturing operation and the business but do not end up as part of the finished product.

2 competing considerations

Reducing the amount of inventory held in stock, while . . . Ensuring there is enough inventory to satisfy customer demand.

Safety Stock

Safety stock, also known as "buffer stock," is inventory that is above and beyond what is actually needed to meet anticipated demand. A quantity of stock planned to be in inventory to protect against fluctuations in demand or supply Companies operating in a make-to-stock environment will generally maintain some amount of safety stock whether based on a management decision, or based on a safety stock determination formula.

Finished Goods

Those items on which all manufacturing operations, including final testing, have been completed. These products are available for sale and/or shipment to the customer.

Maintenance, Repair & Operating (MRO) supplies

are materials that you need to run the manufacturing operation and the business, but do not end up as part of the finished product.

Inventory becomes a liability

if it becomes unusuable

External Inventory

pipeline inventory

Raw Materials

purchased items or extracted materials that are converted via the manufacturing process into components or products

Inventory

quantities of goods and materials that are held in stock

Functions of Inventory

1. To meet customer demand (cycle stock) 2. To Buffer Against Uncertainty in Demand and/or Supply (safety stock) 3. To Decouple Supply from Demand (strategic stock) 4. To Decouple Dependencies in the Supply Chain