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Inventory Control Essay

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Inventory Control

Sudarshan Bahl

1

Learning Objectives
1. 2. 3. 4. 5.

6.

Explain the different purposes for keeping inventory. Understand that the type of inventory system logic that is appropriate for an item depends on the type of demand for that item. Calculate the appropriate order size when a one-time purchase must be made. Describe what the economic order quantity is and how to calculate it. Summarize fixed–order quantity and fixed–time period models, including ways to determine safety stock when there is variability in demand. Discuss why inventory turn is directly related to order quantity and safety stock.

Sudarshan Bahl

2

Inventory
 You should visualize inventory as stacks of money sitting

on forklifts, on shelves, and in trucks and planes while in transit  For many businesses, inventory is the largest asset on the balance sheet at any given time  Inventory is often not very liquid  It is a good idea to try to get your inventory down as far as possible
 The average cost of inventory in the United States is 30 to 35

percent of its value

Sudarshan Bahl

3

Supply Chain Inventories—Maketo-Stock Environment

Sudarshan Bahl

4

Models Discussed
1.


The single-period model
Used when we are making a one-time purchase of an item

2.


Fixed–order quantity model
Used when we want to maintain an item “in-stock,” and when we restock, a certain number of units must be ordered

3.


Fixed–time period model
The item is ordered at certain intervals of time

Sudarshan Bahl

5

Definition of Inventory
 Inventory: the stock of any item or resource used in an

organization and can include: raw materials, finished products, component parts, supplies, and work-inprocess
 Manufacturing inventory: refers to items that contribute to or

become part of a firm’s product

 Inventory system: the set of policies and controls that monitor levels of inventory and determines what levels should...

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