Chapter 7: Inventory Management
B items
40% of the items, 15% of the inventory cost
Cycle Counting
A commonly used technique in which physical inventory is counted on a periodic basis to ensure that physical inventory matches current inventory records.
ABC Inventory Matrix
A diagram that illustrates whether a firm's physical inventory matches its inventory usage. It is derived by plotting an ABC analysis based on inventory usage classification on the vertical axis and an ABC analysis based on physical inventory classification on the horizontal axis.
Pareto Analysis
A graphic technique that prioritizes the most frequently occurring problems or issues. The analysis recommends that problems falling into the most frequently occurring category be assigned the highest priority and managed closely.
Near Field Communication (NFC)
A secure form of data exchange between an NFC tag or Android-powered device with another Android-powered device. A specialized subset of RFID technology.
Radio Frequency Identification (RFID)
A technology that enables huge amounts of information to be stored on chips (called tags) and read at a distance by readers, without requiring line-of-sight scanning
Economic manufacturing Quantity (EMQ)
A variation of the classic EOQ model, used to determine the most economical number of units to produce.
Quantity Discount Model
A variation of the classic EOQ model, wherein purchase price is allowed to vary with the quantity purchased
active RFID tags
An RFID tag that is equipped with an onboard power supply to power the integrated circuits and broadcast its signal to the tag reader.
finished goods
Completed products ready for shipment. Often kept to buffer against unexpected demand changes in anticipation of production process downtime.
Direct Costs
Cost that are directly traceable to the unit produced, such as the amount of materials and labor used to produce a unit of the finished good.
Fixed Cost
Cost that are independent of the output quantity
Physically counting inventory on a periodic basis
Cycle counting can be described as... A.) the analysis performed by an ABC analysis B.) physically counting inventory on a periodic basis C.) inventory control in a Motorcycle shop D.) stock counts of MRO items
Variable Cost
Expenses that vary as a function of the output level.
A items
Given the highest priority. 20% of the items, 80% of the inventory cost
Equal to the annual ordering cost
If an item is ordered using its economic order quantity, the annual carrying cost should be... A.) equal to the the annual ordering cost B.) the square root of the annual ordering cost C.) twice the annual purchase price D.) slightly less than the annual ordering cost
Fixed Order Quantity Models
Independent demand inventory models that use fixed parameters to determine the optimal order quantity to minimize total inventory costs.
C items
Lowest priority and are typically the most numerous. 40% of the items, 5% of the inventory cost.
obsolenscence
Overstocking of B and C items will cause...
Big Data
Refers to collection and analysis of significant portions of data to make business decisions
Economic Order Quantity (EOQ) Model
The classic independent demand inventory system that computes the optimal order quantity to minimize total inventory cost
Holding (carrying) costs
The cost incurred for holding inventory in storage
Independent Demand
The demand for a firms end products and has a demand pattern affected by trends, seasonal patterns, and general market conditions.
service level
The in-stock probability
Reorder Point (ROP)
The lowest inventory level at which a new order must be placed to avoid a stock out during the order cycle time period
Price Break Point
The minimum quantity required to receive a quantity discount
Indirect Cost
Those cost that cannot be traced directly to the unit produced and are synonymous with manufacturing overhead.
Out of stocks
Understocking of A and B items will cause...
MRO (maintenance, repair, operating) supplies
Used when producing the products but are not parts of the products. (Ex. Solvents, cutting tools, and lubricants for machines)
Cost, radio frequencies differ, skeptical about sharing information
What are RFID challenges?
Unprocessed purchased inputs or materials for manufacturing the finished goods
What are raw materials?
Radio Frequency Identification (RFID)
What is an inventory tracking tool, like barcoding, that does not require direct line of site for scanning (tag, reader, communication network, and software)
EOQ= square root ((2*annual demand*cost of placing one order)/holding cost))
What is the economic order quantity equation?
Annual Purchase+Annual Order+Annual Holding
What is the equation for the total annual inventory cost?
To buffer against demand uncertainty and safety stock
What is the primary purpose of inventory?
Dependent Demand
When General Motors purchased tires for their automobiles, this can be classified as: A.) continuous demand B.) dependent demand C.) independent demand D.) customer demand
80% of the annual dollar usage
When using the ABC Inventory Classification, A items typically account for about...
Retail goods at a department store
Which of the following is not a dependent demand? A.) service parts at an auto repair shop B.) raw materials at a manufacturer C.) retail goods at a department store D.) hamburger buns at McDonald's
Periodic Review System
a review of physical inventory at specific points in time
Continuous Review System
an inventory management system where the physical inventory levels are counted on a continuous or daily basis
Work in Process (WIP)
describes materials that are partially processed but not yet ready for sales.
Inventory
one of the most expensive assets for a company. It needs to be reduced but levels maintained to avoid stock outs.
80/20 rule
A theory originating from Pareto analysis, which suggest that most of a firms problem "events" (80 percent) are accounted for by just a few (20 percent) of the problems; can also be applied to other areas, such as the ABC inventory control, which says 80 percent of inventory dollars come from 20 percent of the inventory items
ABC Inventory Control System
A useful technique for determining which inventories should be managed more closely and which others should not (A items are the most important)
electronic product code (EPC)
A widely used RFID standard managed by EPC global, Inc.
Inventory Turnover Ratio
A widely used measure to analyze how efficiently a firm uses its inventory to generate revenue.
The tag, reader, communication network, and software
An RFID system consist of... A.) the code, band, writer, and reader B.) the tag, reader, communication network, and software C.) the standards, the equipment, the software, and the printer D.) the header, the manager, object, and serial number
Inventory Turns Ratio= Cost of Revenue/Average Inventory
Inventory Investment is measured by...
Materials Management Manufacturing Distribution Center Retail Store
RFID is a tool which automated the supply chains...
passive RFID tags
RFID tags that are without an internal power source and require power from a tag reader
maintenance, repair, and operating supplies
The categories of inventory are raw materials, work-in-process, finished goods, and ______
Setup Cost
The cost associated with setting up machines and equipment to produce a batch of product.
Dependent Demand
The internal demand for parts based on the demand of the final product in which the parts are used. Subassemblies, components, and raw materials are examples.
Excess carrying cost
Too much inventory creates...
Raw Materials Finished Goods Work in Process MRO (maintenance, repair, & operating
What are the 4 categories of inventory?
Cost, radio frequencies differ, skeptical about sharing information
What are the RFID challenges?
Independent (finished goods/final products requested by customer) & dependent demand (components to assemble/manufacture independent demand)
What are the two inventory types?
To decouple processing stages or to break the dependencies between work centers
What is a reason to keep WIP inventories?
Direct Cost
Each unit produced contains $1.25 in materials. This is an example of...
Order Cost
the direct variable cost associated with placing an order with a supplier
