Transcript Inventory - Loyola Marymount University

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

Protect supply chain against
uncontrollable external factors

Take advantage of price or quantity
discounts

Hedge against price increases
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
Inventory Costs



Carrying Cost
• cost of
holding an item in inventory
Ordering Cost
• cost of
replenishing inventory
Shortage Cost
• temporary or permanent loss of sales when
demand cannot be met
Dependent versus Independent
Demand
Item
Demand
Source
Material
Type
Method of
Estimating
Demand
Planning
Method
Materials With
Independent Demand
Materials With
Dependent Demand
Company Customers
Parent Items
Finished Goods
WIP & Raw Materials
Forecast & Booked
Customer Orders
EOQ & ROP
Calculated
MRP
Push/Pull View of Supply Chains
Procurement,
Manufacturing and
Replenishment cycles
PUSH PROCESSES
Customer Order
Cycle
PULL PROCESSES
Customer
Order Arrives