What is inventory?
Those stocks or items used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts).
What is inventory velocity?
Michael Dell talks about inventory velocity-the speed at which components move through Dell Computer’s operations
What is traditional inventory?
Raw materials, components, work-in-progress, finished goods, distribution inventory, maintenance, repair & operating supplies
What is Cycle Stock?
Components or products that are received in bulk by a downstream partner, gradually used up, and then replenished again in bulk by the upstream partner.
What is Safety Stock?
Extra inventory that companies hold to protect themselves against uncertainties in either demand levels or replenishment time.
What is the basic stock calculation?
Basic stock calculation = opening stock – sales + production = closing stock
What are 4 inventory types?
- Anticipation inventory
- Hedge inventory
- Transportation inventory
- Smoothing inventory
What is Anticipation inventory?
Inventory that is held in anticipation of customer demand.
What is Hedge inventory?
A form of inventory build up to buffer against some event that may not happen. (speculation against rare events).
What is Transportation inventory?
lnventory that is moving from one link in the supply chain to another
What is Smoothing inventory?
lnventory that is used to smooth out differences between upstream production levels and downstream demand.
What are the inventory drivers?
- Supply and Demand Uncertainty
- Business Conditions that force companies to hold inventory
What Business Conditions drive inventory?
- Mismatch between a downstream partner’s demand and the most efficient production or shipment volumes for an upstream partner
- Mismatch between downstream demand levels and upstream production capacity
- Mismatch between timing of customer demand and supply chain lead times
What is Independent Demand Inventory?
Items whose demand levels are beyond a company’s complete control.
What is Dependent Demand Inventory?
Items whose demand levels are tied directly to the company’s planned production of another item.
- The required quantities and timing of dependent demand inventory items can be predicted with great accuracy
What is Stock (inventory) Turnover?
- Inventory turnover, or the inventory turnover ratio, is the number of times a business sells and replaces its stock of goods during a given period.
- Inventory turnover can be compared to historical turnover ratios, planned ratios, and industry averages to assess competitiveness and intra-industry performance. Inventory turns can vary significantly by industry.
- It measures the soundness of inventory methods.
- It also indicates poor inventory planning and lack of controlling techniques.
What does a high inventory turnover mean?
It means that goods are sold faster
What does a low inventory turnover mean?
It indicates weak sales and excess inventories, which may be challenging for a business.
What are the 4 inventory valuation methods?
- The specific identification method
- The first in, first out method
- The last in, first out
- The weighted average method
What is the specific identification method?
You track the specific cost of individual items of inventory.
What is the first in, first out method?
You assume that the first items to enter the inventory are the first ones to be used.
What is the last in, first out method?
You assume that the last items to enter the inventory are the first ones to be used.
What is the weighted average method?
An average of the costs in the inventory is used in the cost of goods sold.
What happens when we improve inventory turnover?
By improving Inventory Turnover, easily increase profitability by carrying fewer inventories.
