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Forecasting Final

Terms in this set (53)

inventory
the mechanism by which firms can respond quickly to seemingly endless customer demands and allows customers not to wait
a good SC has stocks of inventory at each stage to __________________________ of demand from downstream entities
facilitate rapid fulfillment
farmers know there will be an aggregate demand for cereal so they...
plant cropland find buyers at a later time
stocking inventory
separate the demand and the supply processes in space, time, or both
decoupling
spatial and temporal separation of demand and operations management field
accountant classify inventory as a _____________
current asset
SC looks at inventory as an __________________
investment
one of the major components of the cost of holding inventory is...
the opportunity cost of the capital invested in the inventory
inventory represents....
an investment of a firms capital
firms invest their capital in inventory to satisfy customers demands when and where they occur but want to...
limit their investment as much as possible
all current inventory needs to have a purpose or...
the firm should get rid of it to lower costs
the total inventory stockpile can be split into groups based on their...
reasons for being held; when firms reduce i inventory they should focus on these groups snd determine which ones may be too large
cycle stock
main type of inventory that firms hold; represents the inventory that is required to satisfy customer demand between orders that the firm receives from its suppliers
safety stock
units held to help firms handle all forms of uncertainty that they encounter; without safety stock a firm would be ill-prepared to respond to unexpected conditions that may arise
seasonal stock
customer demand for many products is not constant throughout the year; ex. the holiday season November-December
options for firms that supply seasonal retailers:
produce only what is needed in each period and ramp up their production at the end of the year to fulfill retail orders; produce extra throughout the year; build up seasonal stock in advance of predictable demand peaks
heading stock
if firms can foresee a price increase or a supply shortage for a specific product in the near future it would make economic sense for them to acquire as many of the unit as possible
pipeline stock
goods that travel through the SC from location to location; longer the time in transit, higher the inventory investment
psychic stock
firms may decide to keep inventory behavior purposes that have little or nothing to do with fulfilling customer demand (ex. grocery stores display of soda thats more than they'll be able to sell but reminds customers they may need to buy soda)
MRO supplies
firms must stock additional supplies that support their operations (ex. machinery, cleaning and office supplies)
inventory costs
how many items should be ordered? when should an order be placed to the supplier? managers need to make trade-offs between several competing inventory costs
ordering (setup) cost
represents the fixed cost component of all the activities that occur whenever an order is placed
holding (carrying) cost
includes all of the costs that a firm incurs related to a carrying goods in inventory; WACC is used to evaluate all investment decisions
stockout cost
incurred when the firm doesn't have enough inventory to satisfy customers' demand when and where it occurs; manufacturers can change production schedule to meet rush/produce small lots especially for certain orders/utilize expedited transportation services
days of supply=
on-hand inventory/average daily demand (length of time that a firms current on-hand inventory is estimated to last before it runs out)
inventory turnover=
COGS/average inventory in dollars (the number of times per period of time that a firm sells the average inventory that it maintains)
ABC classifications
based on economics principle of Pareto's Rule (80% of the impact comes from 20% of units)
A - top 20% (80% of revenue)
B- 30% (15% of revenue)
C- 50%
continuous or perpetual inventory review
firm is willing to monitor their inventory positions so that they can place orders at any point in time (ex. fixed order points, reorder point, order-up-to policies)
periodic review
orders are typically placed at regular intervals can be either for fixed or non fixed quantities; establishes regularity in order timing
raw materials
purchased items received that have not entered production
WIP
materials in manufacturing process
FG
ready to be sold as completed items
distribution inventories
FG located in distribution system
MRO
items used in production that do not become part of the product
anticipation inventories
built in anticipation of future demand
fluctuation inventory (safety stock)
held to cover random unpredictable fluctuations in supply and demand
lot-size inventory (cycle stock)
items purchased or manufactured in quantities greater than needed immediately; takes advantage of quantity discounts
transportation inventory (pipeline)
exist because of the time it takes transportation to get from A to B
FIFO
first in, first out; assumes the oldest items in stock is sold first
LIFO
last in, first out; assumes the newest item in stock is the first sold
what are the objectives of inventory management
provide the required level of customer service and to reduce the sum of all
what two questions must be answered to achieve inventory management objectives
how much should be ordered at one time; when should an order be placed
control is exercised through...
individual items in a particular inventory called Stock Keeping Units
lot-for-lot
rule says to order exactly what is needed- no more, no less
fixed-order quantity
rules specify the number of units to be ordered each time an order is placed for an individual item or SKU
min-max system
version of the fixed-order quantity; an order is placed when the quantity available falls below the order point
order in periods supply
rather than ordering a fixed quantity, they can order enough to satisfy future demand for a given period of time
economic order quantity
demand is relatively constant and known; the item is produced or purchased in lots or batches and not continuously; replacement occurs all at once
relevant costs
annual costs of placing orders and annual costs of carrying inventory; as order quantity increases the average inventory and annual cost of carrying inventory increase but the number of orders per year and ordering cost decrease
trial-and-error method
parts are often ordered in convenient packages and its adequate to pick the package quantity close to the EOQ; usually difficult to determine the accurate cost of carrying inventory and ordering
EOQ: reduce lot size
EOQ will increase as the annual demand and the cost of ordering increase and it will decrease as the cost of carry inventory and the unit cost increase
variations of the EOQ model
monetary unit lot size, non-instantaneous receipt model
period order quantity
uses the EOQ formula to calculate an economic time between orders; doesn't calculate a "quantity" but actually calculates the number of "periods" that are to be covered
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