Inventory Management
What are the types of service classes?
critical, non critical, scheduled delivery
What is raw material?
it is purchased but not processed
What is cycle counting?
items are counted and records updated on a periodic basis, usually a portion of the items are counted at different times of the year
What is the C in ABC analysis?
low annual dollar volume
What is MRO?
maintenance, repair, operating
What is the B in ABC analysis?
medium annual dollar volume
What are internal controls?
systems that ensure a company meets its obligations and that financial reports are accurate
What is independent demand?
the demand for an item is independent of the demand for any other item in inventory
What is cycle counting often used with?
ABC analysis
What is the A in ABC analysis?
Class A- high annual dollar volume
What are some ways to obtain short-term financing?
bank loan, line of credit, commercial paper
Which short-term financing vehicle is considered an "IOU"?
commercial paper
What is the service level?
probability that the inventory available during lead time will meet demand
Where in the operating cycle is a business most concerned about managing the cash from customers?
receivables
What did the Sarbanes-Oxley Act do?
set internal controls in place and verified it by auditor
Where may losses in control of service inventory come from?
shrinkage or pilferage
What is work-in-process inventory?
- it has undergone some change but not completed, it is a function of cycle of time for a product
What are examples of good internal control practices?
1. Separation of duties 2. Physical asset protection 3. Independent checks 4.
How can you shorten the operating cycle without adversely affecting anything else?
Work with a good vendor partner.
What are other criteria than annual dollar volume that may be used in ABC analysis?
anticipated engineering changes, delivery problems, quality problems, high unit cost
What is finished goods?
it is completed and awaiting product shipment
What are the advantages of cycle counting?
1. Eliminates shutdowns and interruptions 2. Eliminates annual inventory adjustment 3. Trained personnel audit inventory accuracy 4. Allows causes of errors to be identified and corrected 5. Maintains accurate inventory records
What are the typical costs involved?
1. Facility costs 2. Human Capital 3. Finance Costs 4. Management costs 5. Procurement costs 6. Inventory Turnover 7. Stock Accuracy 8. Pillage and Ullage 9. Service Levels
What are three applicable techniques for control of service inventory?
1. Good personnel selection, training, and discipline 2. Tight control on incoming shipments 3. Effective control on all goods leaving facility
Strategies to Better Manage Inventory
1. Vendor Managed Inventory 2. Posteponement Logistics 3.
What are the functions of inventory?
1. to decouple or separate various parts of the production process 2. To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers 3. To take advantage of quantity discounts 4. To hedge against inflation
Inventory typically represents what percentage of the total invested capital?
50%
How does a company use a "cash budget" for short-term financing needs?
A cash budget can be used to approach a bank or other lender for a short-term loan.
In the context of internal controls, which example demonstrates "separation of duties"?
A warehouse manager is not provided access to the company's inventory records.
What does the EOQ formula assume?
assumes lead time from vendors is constant, price and ordering costs are constant, and that your demand is constant
What is the control of service inventories?
can be a critical component of profitability
Which type of short-term financing is given only to credit-worthy companies?
commercial papers; Commercial paper is an IOU that circulates in the money market at low interest rates, which requires a company to be very credit-worthy.
ABC Corp. purchases electronic components to assemble cell phones. Where should ABC engage in short-term financial management?
in the lag time between making cash payments to vendors for inventory and receiving cash payments from customers
What is dependent demand?
the demand for item is dependent upon the demand for some other item in the inventory
What is the objective of inventory management?
the objective of inventory management is to strike a balance between inventory investment and customer service
What do inventory models for independent demand do?
they need to determine when and how much to order
Why would a company use a restrictive laptop policy?
to protect intellectual property
What are some credit risks?
unpaid debt, added bookkeeping costs, limited use of money
What is ABC analysis used for?
used to establish policies that focus on the few critical parts and not the many trivial ones
What is the most expensive assets of many companies?
inventory
What does ABC analysis do?
it divides inventory into three classes based on annual dollar volume
What is a company's EOQ or economic order cost?
it is a company's optimal order quantity for minimizing its total costs related to ordering, receiving, and holding inventory
What is receivables management?
managing the money that's owed to your company
What are the different types of inventory?
raw material, work in process, maintenance/repair/ operating, finished goods
