Chapter 8
Stockout costs
-an estimated cost or penalty for running out of a product -involve an understanding of a customer's reaction to a company being out of stock when a customer wants to buy an item
Reorder (trigger) point (ROP)
Level of inventory at which a replenishment order is placed
Complementary products
inventories that can be used or distributed together, ex: razor blades and razors, chips and salsa
Psychic stock
inventory carried to stimulate demand (retail). products that are placed right in front of the door so people see them
Fixed order interval system
inventory is replenished on a constant, set schedule and is always ordered at a specific time; the quantity ordered varies depending on forecasted sales before the next order date
Pipeline (in-transit) stock
inventory that is en route between various fixed facilities in a logistics system such as a plant, warehouse, or store.
Speculative stock
inventory that is held for several reasons, including seasonal demand, projected price increases, and potential shortages of a product.
Safety (buffer) stock
inventory that is held in addition to cycle stock to guard against uncertainty in demand or lead time.
Cycle (base) stock
inventory that is needed to satisfy normal demand during the course of an order cycle.
Inventory
stocks of goods and materials that are maintained for many purposes, the most common being to satisfy normal demand patterns.
ABC analysis of inventory
-recognizes that inventories are not of equal value to a firm -all inventory should not be managed in the same way
Inventory carrying costs
-the costs associated with holding inventory: shrinkage (stealing), storage, handling, taxes, interest -In general expressed in percentage terms and this percentage is multiplied by the inventory's value -Resulting number represents dollar value associated with holding the particular inventory
Vendor-managed inventory (VMI)
Allows manufacturers to have access to a distributor's or retailer's sales and inventory data
Fixed order quantity system
Inventory is replenished with a set quantity every time it is ordered; the time interval between orders may vary.
Inventory shrinkage
More items are recorded entering than leaving warehouse facilities
Just-in-time (JIT) approach
Seeks to minimize inventory by reducing (or eliminating) safety stock while having the required amount of materials arrive at the production location at the exact time they are needed
cycle or base stock, safety or buffer stock, pipeline stock, speculative stock, and psychic stock
What are the different types of inventory?
when you are almost out of a product so you need to reorder. (Daily demand x length of replenishment cycle) + safety stock
What is a reorder point and how is it calculated?
Back order
don't have the product at the moment but can order it, delayed sale
Service parts logistics
involves designing a network of facilities to stock service parts, deciding upon inventory ordering policies, stocking the required parts, and transporting parts from stocking facilities to customers
Inventory turnover
number of times that inventory is sold in a one-year period. (Compare with competitors or benchmarked companies)
Dead inventory (dead stock)
product for which there is no sales during a 12 month period
Substitute products
products that can fill the same need or want as another product. ex: ribeye instead of prime rib
Ordering costs
those costs associated with ordering inventory, such as order costs and setup costs.
Lean manufacturing (lean)
-Focuses on the elimination of waste and the increase of speed and flow -Identifies seven major sources of waste including inventory
Economic order quantity (EOQ)
-Determines the point at which the sum of carrying costs and ordering costs is minimized, or the point at which carrying costs equal ordering costs -carrying and ordering costs