- •What are two inventory classification systems? How do these differ? What is the purpose of such systems? How is each analysis done?
- •What is the 80-20 rule? How is it stated? What causes this to occur when looking at products?
- •What are the various costs associated with inventory? Which are largest? How are they expressed?
- •Ordering Cost
- •Carrying Cost (Holding costs) – the largest!
- •Inventory Storage Cost
- •Cost of Capital
- •4. What are reasons for holding physical supply inventory? What are reasons for holding physical distribution inventory?
- •Market penetration
- •Transportation and Physical Barriers
- •Production lead times
- •Avoid Certain Costs
- •6. What is "just-in-time" inventory management? What are the characteristics? When does it work best? How does it compare to the American system? Problems?
- •7. What are the functional types of inventory we find in a logistical system?
- •8. Trade-off Analysis: Service-Level vs. Cost
- •What is the objective of inventory management and control?
- •Inventory Management provides:
- •Meet Demand
- •Control Costs
- •Identify Opportunities
- •4 Categories of an Inventory Management Tool
- •Logistics Interfaces with Operations
- •Interface activities:
- •Explain the value-added role of logistics
- •Costs Are Significant
- •Logistics Customer Service Expectations Are Increasing
- •Supply and Distribution Lines Are Lengthening with Greater Complexity
- •Logistics/sc Is Important to Strategy
- •Logistics/sc Adds Significant Customer Value
- •12. What are the six major steps that are recommended for a logistics network design process?
- •13. Describe the four main scenarios which occur in the event of a stockout?
- •14. Explain the productivity objective to be achieved through warehouse layout and design?
- •Describe the role of transportation in logistics?
- •Creating Economic Utility
- •Market Area Decision
- •Purchasing Decisions
- •Location Decisions
- •Pricing Decisions
- •Transportation's Place in the Economy
- •Geographic specialization
- •Large-Scale Production
- •Describe some of the dimensions upon which supply chain relationships may differ?
- •17. What are the possible reasons for a company to outsource its logistics? What does this trend mean for today’s businesses?
- •18. What is the role and functions of supply chain intermediaries?
- •20. What are the reasons for logistics providers to improve and expand their businesses? In what way logistics providers of different levels differ?
- •21. How to identify what level of customer service should be offered? (consider tradeoffs)
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Inventory Storage Cost
Inventory storage costs typically include Cost of Building Rental and facility maintenance and related costs. Cost of Material Handling Equipments, IT Hardware and applications, including cost of purchase, depreciation or rental or lease as the case may be. Further costs include operational costs, consumables, communication costs and utilities, besides the cost of human resources employed in operations as well as management.
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Cost of Capital
Includes the costs of investments, interest on working capital, taxes on inventory paid, insurance costs and other costs associate with legal liabilities.
The inventory storage costs as well as cost of capital is dependent upon and varies with the decision of the management to manage inventory in house or through outsourced vendors and third party service providers.
- Interest on Investment.
- Losses from obsolescence and spoilage.
- Storage-space costs, including Rent, Rates, Taxes, Electricity, etc.
- Insurance, in addition- fixed costs in form of salaries, wages etc of employees connected with this work in stores and Material handling Departments.
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Setup costs - cost to prepare a machine or process for manufacturing an order; production.
Setup Costs (examples) - Machine setup costs, Clean-up costs, Re-tooling costs, Adjustment costs, Etc.
4. What are reasons for holding physical supply inventory? What are reasons for holding physical distribution inventory?
Reasons for holding supply inventories:
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To meet expected production plan
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A business must ensure that it has adequate supply stocks to meet expected demand for production.
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To guard against shortages
Holding supply inventory can act as insurance against future shortages. Unexpected shortages in the supply of raw materials can affect the production run of a business. Holding inventories allows to continue the activities of an enterprise.
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Economies of Scale in Procurement
In many cases, the larger the order, the higher the discount is. Suppliers often offer trade discounts for bulk purchases. A business can reduce the unit cost of materials by purchasing a large amount of raw materials to hold in stock.
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To deal with variations in usage or demand
"Usage" refers to production consumption in a manufacturing process. Increased usage can increase the demand for materials. Sometimes businesses have special orders or high seasonal demand that can require additional stock to facilitate such incidents.
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In times of high inflation/ supply shortages
Holding supply inventories can be a strategy in response to unusual or difficult economic circumstances. In times of high inflation, a business might not wish to purchase stock at increasingly higher prices. So, a business determines that it is feasible to hold additional inventory beyond the usual levels.
Reasons for holding distribution inventories:
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Meeting anticipated demand
For businesses it is necessary to have enough distribution stocks to meet expected demand for goods or services and keep customers satisfied. The network of and number of warehouses require to reach products to the markets in view of inventory holding plan, transit times and order management lead times etc, in order to achieve Customer Satisfaction and Demand Fulfillment.
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Dealing with variations in demand
Increased demand is one of the main purposes of distribution stocks shortages. Seasonal or unexpected demand fluctuations bring influence on customer service level that is why holding distribution inventory is very important.