Chapter 11 Learning Guide.docx

Inventory Management Terms Little’s Law Inventory turnover Periodic system Perpetual inventory system Two-bin system Universal product code (UPC) Point-of-sale (POS) systems Lead time Purchase cost Holding (carrying) cost Ordering costs Setup costs Shortage costs A-B-C approach Cycle counting Cycle stock Safety stock Economic order quantity (EOQ) Quantity discounts Reorder point (ROP) Safety stock Service level Fixed-order-interval (FOI) model Single-period model Shortage cost Excess cost

The average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system. Ratio of annual cost of goods sold to average inventory investment. Physical count of items in inventory made at periodic intervals (weekly, monthly). System that keeps track of removals from inventory continuously, thus monitoring current levels of each item. Two containers of inventory; reorder when the first is empty. Bar code printed on a label that has information about the item to which it is attached. Electronically record items at time of sale. UPC scanners provide speed and accuracy, give managers continuous information on inventories, reduce the need for periodic review and order–size determinations Time interval between ordering and receiving the order. The amount paid to buy the inventory. Cost to carry an item in inventory for a length of time, usually a year. Costs of ordering and receiving inventory The costs involved in preparing equipment for a job. Costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit. Classifying inventory according to some measure of importance, and allocating control efforts accordingly. A physical count of items in inventory. The amount of inventory needed to meet expected demand. Extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability. The order size that minimizes total annual cost. Price reductions for larger orders. When the quantity on hand of an item drops to this amount, the item is reordered. Stock that is held in excess of expected demand due to variable demand and/or lead time. Probability that demand will not exceed supply during lead time. Orders are placed at fixed time intervals. Model for ordering of perishables and other items with limited useful lives. Generally, the unrealized profit per unit (i.e. profit/unit - cost per unit). Difference between purchase cost and salvage value of items left over at the end of a period.