Chapter 7 - Managing inventories. This chapter include objectives: Define the different typvantages andes and roles of inventory, explain the financial impact of inventory, explain and compute measures of performance, calculate inventory policy parameters to minimize total acquisition cost, determine the cost of a company’s service level policy, explain the ad disadvantages of different inventory location strategies, describe practical techniques for inventory planning and management. | Copyright © 2014 McGraw-Hill Higher Education. All rights reserved. CHAPTER 7 Managing Inventories McGraw-Hill/Irwin 1 Learning Objectives LO7-1 Define the different types and roles of inventory LO7-2 Explain the financial impact of inventory LO7-3 Explain and compute measures of performance LO7-4 Calculate inventory policy parameters to minimize total acquisition cost LO7-5 Determine the cost of a company’s service level policy LO7-6 Explain the advantages and disadvantages of different inventory location strategies LO7-7 Describe practical techniques for inventory planning and management 7–2 2 Inventory: supply of items held to meet demand Customers Suppliers Raw Material Components MRO Maintenance, repair & operating supplies Distribution Work in Process (WIP) Finished Goods (FGI) Customers Suppliers Raw Material Components MRO Maintenance, repair & operating supplies Distribution Work in Process (WIP) Finished Goods (FGI) Transportation 7–3 Types of Inventory LO7-1 Types of . | Copyright © 2014 McGraw-Hill Higher Education. All rights reserved. CHAPTER 7 Managing Inventories McGraw-Hill/Irwin 1 Learning Objectives LO7-1 Define the different types and roles of inventory LO7-2 Explain the financial impact of inventory LO7-3 Explain and compute measures of performance LO7-4 Calculate inventory policy parameters to minimize total acquisition cost LO7-5 Determine the cost of a company’s service level policy LO7-6 Explain the advantages and disadvantages of different inventory location strategies LO7-7 Describe practical techniques for inventory planning and management 7–2 2 Inventory: supply of items held to meet demand Customers Suppliers Raw Material Components MRO Maintenance, repair & operating supplies Distribution Work in Process (WIP) Finished Goods (FGI) Customers Suppliers Raw Material Components MRO Maintenance, repair & operating supplies Distribution Work in Process (WIP) Finished Goods (FGI) Transportation 7–3 Types of Inventory LO7-1 Types of Inventory 3 Financial Impact of Inventory LO7-2 7–4 4 Measures of Inventory Performance: Inventory Turnover Inventory turnover: ratio of average inventory on-hand and level of sales = Cost of goods sold / Average inventory at cost = Net sales / Average inventory at selling price = Unit sales / Average inventory in units With an annual cost of goods sold of $500M and average inventory of $80M. Inventory turns = $500/$80 = turns 7–5 Example 7-2 LO7-3 5 Measures of Inventory Performance: Days, Service Level, Stock outs Days of Supply: length of time operations can be supported with inventory on-hand Days of supply = Inventory/Daily demand If inventory is 2M and daily demand is 25,000 day Days of supply = 2M/25,000 = 80 days Service Level: ability to meet customer demand without a stock out Stock out: no inventory is available 7–6 Example 7-3 LO7-3 Independent Demand: demand is beyond control of the organization Dependent Demand: demand is driven by demand of another item 7–7 Inventory .
