Notes on Inventory
Chapter 7 Supply Chain Management
_______ Types of inventory
* By stages of production and value added * Raw materials (RM) * Work-in-progress (WIP) * Finished goods (FG) * They’re not equally costly * Finished goods are more valuable * They need to be managed differently * By function * Cycle stock (working stock): amount of inventory that you expect to sell * Safety stock (buffer stock): amount of inventory that you don’t expect to sell * Seasonal stock (anticipation stock): you don’t sell this particular product at all times * In-transit stock (pipeline stock): you bought something and they have shipped it, but you haven’t still received it. It may have costs such as insuring it. Also the slower the product moves, the later you can get your rate of return on the investment * Decoupling stock:
________ Reasons for carrying inventory
* To reduce the negative effects of uncertainty * Demand * Supply * Production * Transportation * To gain economies of scale * Purchasing * Production * Transportation
1. Uncertainty a. Uncertainty in demand i. Customer demand is usually unknown ii. Maintain target customer service levels iii. Stock-out cost (you lose sales) vs. inventory carrying costs (you’re able to meet customer demand, but then you have extra) b. Uncertainty in supply iv. Availability, prices may vary (raw material may not be available at all times, and their prices may vary. Thus, when prices go down, it is more beneficial to buy inventory) v. Maintain uninterrupted flow of raw material vi. Stock-out costs vs. inventory carrying costs c. Production vii. Process times, sequences may vary viii. Minimize idle time, maximize utilization ix. Stock-out cost vs. inventory carrying costs d.
_______ Types of inventory
* By stages of production and value added * Raw materials (RM) * Work-in-progress (WIP) * Finished goods (FG) * They’re not equally costly * Finished goods are more valuable * They need to be managed differently * By function * Cycle stock (working stock): amount of inventory that you expect to sell * Safety stock (buffer stock): amount of inventory that you don’t expect to sell * Seasonal stock (anticipation stock): you don’t sell this particular product at all times * In-transit stock (pipeline stock): you bought something and they have shipped it, but you haven’t still received it. It may have costs such as insuring it. Also the slower the product moves, the later you can get your rate of return on the investment * Decoupling stock:
________ Reasons for carrying inventory
* To reduce the negative effects of uncertainty * Demand * Supply * Production * Transportation * To gain economies of scale * Purchasing * Production * Transportation
1. Uncertainty a. Uncertainty in demand i. Customer demand is usually unknown ii. Maintain target customer service levels iii. Stock-out cost (you lose sales) vs. inventory carrying costs (you’re able to meet customer demand, but then you have extra) b. Uncertainty in supply iv. Availability, prices may vary (raw material may not be available at all times, and their prices may vary. Thus, when prices go down, it is more beneficial to buy inventory) v. Maintain uninterrupted flow of raw material vi. Stock-out costs vs. inventory carrying costs c. Production vii. Process times, sequences may vary viii. Minimize idle time, maximize utilization ix. Stock-out cost vs. inventory carrying costs d.