NoteInventoryManagement.docVIP

Chapter Four Inventory Management I. Learning objectives and requirements 1. to know the types and characteristics of Inventory 2. to know the inventory functionality 3. to know some inventory-related definitions 4. to know the components of inventory carrying cost 5. to know the methods of determining when to order and how much to order 6. to know how to manage demand uncertainty and performance cycle uncertainty 7. to understand inventory management policies II. Learning contents Section I. Inventory Functionality and Principles 1. Main contents 1) Inventory Types and Characteristics a) Raw Material Inventory b) Work-In-Process Inventory c) Maintenance/Repair/Operating Supply (MRO) Inventory d) Finished Goods Inventory 2) Inventory Functionality Table 10-2 summarizes inventory functionality. These four functions—geographical, specialization, decoupling, balancing supply and demand, and buffering uncertainty-require inventory investment to achieve managerial operating objectives. 3) Inventory-Related Definitions a) Inventory Policy Inventory policy consists of guidelines concerning what to purchase or manufacture, when to take action, and in what quantity. It also includes decisions regarding geographical inventory positioning. b) Inventory Performance Indicators The inventory policy essentially determines inventory performance. The two key indicators of inventory performance are service level and average inventory. Service Level The service level is the performance target specified by management. It defines inventory performance objectives. Service level is often measured in terms of an order cycle time, case fill rate, line fill rate, order fill rate, or any combination of these. ii) Average Inventory Average inventory consists of the materials, components, work-in-process, and finished product typically stocked in the logistical system. From a policy viewpoint target inventory levels must be planned for each facility. c) Economic Order Quantity (EOQ) The Ec