Inventory Management Thursday, June 20, 2013 11:09 PM The objective of inventory management is to strike a balance between inventory investment and customer service. Inventory - stock/store of goods • Inventories are a vital part of the business  Necessary for operations  Contribute to customer satisfaction Types of Inventory • Raw Material -purchased but not processed • Work-in-process - undergone some change but not completed ; function of cycle time for a product • Maintenance/ repair/ operating - necessary to keep machinery and processes productive • Finished - completed product awaiting shipment Functions of Inventory 1. 2. 3. 4. 5. 6. 7. 8. To meet anticipated customer demand - anticipated stock To smooth production requirement - seasonal inventories To decouple operation - decoupling stock To protect against stock outs - safety stock To take advantage of order cycles - cycle stock To hedge against price increases To permit operations To take advantage of quantity discounts  Management has two basic functions concerning inventory ○ Establish a system for tracking items in inventory ○ Inventory turnover - ratio of average cost of goods sold to average inventory investment ○ Make decisions about ○ when to order ○ how much to order Requirements for Effective Inventory Management 1. 2. 3. 4. 5. A system to keep track of inventory on hand order A reliable forecast of demand that includes an indication of possible forecast error Knowledge o ...
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