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Inventory

Inventory. Stock of items held to meet future demand Inventory management answers two questions How much to order When to order. Reasons To Hold Inventory. Meet unexpected demand Smooth seasonal or cyclical demand Meet variations in customer demand

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Inventory

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  1. Inventory • Stock of items held to meet future demand • Inventory management answers two questions • How much to order • When to order

  2. Reasons To Hold Inventory • Meet unexpected demand • Smooth seasonal or cyclical demand • Meet variations in customer demand • Protect supply chain against uncontrollable external factors • Take advantage of price or quantity discounts • Hedge against price increases

  3. Approaches to Inventory Management • Just-in-case inventory (overstocking) • Carry high inventories to ensure high customer service level (expensive!) • Just-in-time inventory (understocking) • Carry minimal inventory levels to control costs in exchange for risk of more stockouts

  4. Inventory Costs • Carrying Cost • cost of holding an item in inventory • Examples include warehousing, handling, pilferage, spoilage and investment costs • Ordering Cost • cost of replenishing inventory • Shortage Cost • temporary or permanent loss of sales when demand cannot be met

  5. Materials With Materials With Item Independent Demand Dependent Demand Demand Company Customers Parent Items Source Material Finished Goods WIP & Raw Materials Type Method of Forecast & Booked Calculated Estimating Customer Orders Demand Planning EOQ & ROP MRP Method Dependent versus Independent Demand

  6. Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives

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