Professional Documents
Culture Documents
1
Consulting Group
Learning Objectives
What is inventory.?
Why do we care about inventory?
What do you consider to define your inventory?
Describe the different types and uses of inventory.
Describe the objectives of inventory management.
Calculate inventory performance measures.
Understand relevant costs associated with inventory.
Inventory management video
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Learning Objectives cont
Understand inventorys role in service organizations
Calculate order quantities
Evaluate the total relevant costs of different inventory
policies
Understand why companies dont always use the optimal
order quantity
Understand how to justify smaller order sizes
Calculate appropriate safety stock inventory policies
Calculate order quantities for single-period inventory
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What is inventory?
Higher profit
Why do we care?
Each of Solectrons big customers, which include Cisco,
Ericsson, and Lucent was expecting explosive growth for
wireless phones and networking gear.when the bottom
finally fell out, it was too late for Solectron to halt orders
from all of its 4,000 suppliers. Now, Solectron has $4.7
billion in inventory. (BW, March 19, 2001)
Soda
Milk
Toilet paper
Gas
Cereal
Cash
What Do you Consider?
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Types of Inventory
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How Companies Use Their
Inventory
1. Anticipation or seasonal inventory
2. Fluctuation Inventory or Safety stock: buffer demand
fluctuations
3. Lot-size or cycle stock: take advantage of quantity
discounts or purchasing efficiencies
4. Transportation or Pipeline inventory
5. Speculative or hedge inventory protects against some
future event, e.g. labor strike
6. Maintenance, repair, and operating (MRO) inventories
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Objectives of Inventory
Management
Provide desired customer service level
Customer service is the ability to satisfy customer
requirements
Percentage of orders shipped on schedule
Percentage of line items shipped on schedule
Percentage of $ volume shipped on schedule
Idle time due to material and component shortages
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Inventory Objectives cont
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Customer Service Level Examples
Inventory Turnover:
annual cost of goods sold $10,000,000
Turnover 26 inventory turns
average inventory value $384,615
Weeks/Days of Supply:
average inventory on hand in dollars $384,615
Weeks of Supply 2weeks
average weekly usage in dollars $10,000,000/52
$384,615
Days of Supply 10 days
$10,000,000/260
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Relevant Inventory Costs
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Relevant Inventory Costs
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Inventory management video
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End of class 1
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