UNIT 2 INVENTORY

INVENTORY involves​:

raw materials, work-in-process goods and finished goods of a business's assets. These goods are ready or will be ready for sale. I

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Why is INVENTORY important?

Inventory is a key asset in businesses, because the turnover of inventory a central source of revenue generation and of the earnings for the company's shareholders/owners.

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Why do we need INVENTORY? 3 reasons

1- Time - The time lags of the supply chain, from supplier to user indicate that we need quantitites of inventory to use in this "lead time."

In practice, inventory is maintained for consumption during 'variations in lead time' . Lead time can be solved by ordering a number of days before.

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Why do we need INVENTORY? 3 reasons

2- Uncertainty - Inventories try to protect companies from uncertainties in demand, supply and movements of goods.

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Why do we need INVENTORY? 3 reasons

3- Economies of scale - "one unit at a time at a place where a user needs it, when he needs it" This idea is too expensive for logistics. That is why bulk buying, movement and storing occurs in economies of scale, then also in inventory.

Inventory management is basically about specifying the shape and percentage of stocked goods.

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​Is it a good idea to have a very high amount of inventory for long periods?

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​  No!!! because of inventory storage, obsolescence and spoilage costs.

Careful! Too little inventory isn't good either, because the business may lose potential sales market share!

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Some key concepts related to inventory

​​·         Inventory policies: indicate decision rules about when a replenishment of the inventory starts, and its quantity

·         Stockout: Running out of the inventory of an SKU

·         New old stock (= NOS) merchandise for sale that was manufactured long ago but that has never been used. Maybe it is not produced anymore; the new old stock may be the only market source in a certain time and place.

​• Procurement: Getting or obtaining of goods or services; hopefully in the correct quantity, at the best cost to get the best quality and quantity, time, and location.

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Other STOCK types​

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​·         Buffer/safety stock: A level of extra stock that is companies have to avoid stockouts when they are not sure about supply and demand.

·         Cycle stock: Used in batch processes, it is the inventory a company has excluding buffer stock.

• Anticipation stock: Extra stock for periods of higher demand – for example, ice cream for summer.

• Pipeline stock: Goods in transit or in distribution; not in the industry anymore but not with the customer yet.

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JUST IN TIME = JIT​

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​It's a production strategy to make business return on investment better because it can reduce inventory, and costs go down.

Just-in-time = Toyota Production System.

JIT can be effective when it follows signals or Kanban between different points in the process. They indicate when to produce the next part. Kanban are normally 'tickets'.

A correct JIT can make the manufacturing return on investment better, have better quality, and efficiency.

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JUST IN TIME = JIT​: What's its philosphy?

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JIT shows the invisible costs of maintaining inventory, it's not a simple solutions.

The company must follow a series of new methods to manage the consequences of the change. This philosophy defines how inventory is viewed and how it relates to management.

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JUST IN TIME benefits/advantages

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 Reduced setup time: reducing or eliminating inventory

 Better flow of goods from warehouse to shelves.

 More efficient employees. Trained people who can work on different parts of the process and companies can move workers where needed.

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JUST IN TIME benefits/advantages

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 Production times and work hours = demand. This saves the company money.

 Better supplier relationships. A company without inventory does not want a supply system problem where they don’t have all parts.

 More regular and synchronized supplies - production-demand. Lower need for storage facilities.​

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JUST IN TIME negative points / disadvantages

1. Almost no mistakes can be made because there is little stock.

2. Production depends on suppliers. If stock is not delivered on time, all the production may be late.

3. There is no extra finished product for unexpected orders, because all products correspond to real orders

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Final concepts

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​·         Pull system: the quantity of inventory is reduced. You need a product, you make the product. The pull system is the ideal way for a supply chain, (push system is the opposite) . In a pull system products vary depending strictly on the demand, not from predictions based on how things operated before. A perfect example of an almost ideal pull supply chain is the Dell business model.

·         Stock Keeping Unit (SKU) is a combination of all the components that are  put together into an item. Any change in the packaging or product is a new SKU.

·         Lead time: The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this "lead time".

Multiple Choice

“The acquisition of goods and services” is a definition of:

• Supply chain

• JIT

• Procurement

• Warehousing

Multiple Choice

What is stockout?

• Running out of stock of an inventory item

• Having more offer than demand

• Having stock stored outside the warehouse

• Distributing goods

Multiple Choice

JIT produces continuous...

• ...improvement and better return on investment, quality, and efficiency.

• ... flow and employee satisfaction

• ....reduction in inventory

• ...decrease and lower return on investment, worse quality and no efficiency

Multiple Choice

• Stock Keeping Unit (SKU) is:

• a ticket to know when to produce

• a combination of all the components that are put together into an item.

• merchandise for sale that was manufactured long ago but that has never been used.

• a ticket that signals different points in the inventory

Multiple Choice

Inventory storage, obsolescence and spoilage costs are problems you have when:

• You use kanbans

• You do not use kanbans

• You have low amount of inventory for many days.

• You have a very high amount of inventory for long periods

Multiple Choice

__________________ specify decision rules about when you need to replenish, the quantity you need and where you are in the supply network.

• Inventory

• Inventory policies

• Just in time

• JIT

Multiple Choice

A kanban corresponds to:

• All parts of a company’s inventory.

• Japanese strategies of business.

• Tickets used in the JIT strategy to meet its objectives

• The companies that use the JIT.

Multiple Choice

Dell’s model of business is an example of:

• Pull system

• Push system

• Inventory reduction

• Inventory decrease

Multiple Choice

With JIT you need a lot of space and money to keep stock.

• TRUE

• FALSE

Multiple Choice

In JIT the relationship with the supplier is central.

• TRUE

• FALSE

Multiple Choice

You reduce inventory involves MORE delivery time & MORE turn rates.

• TRUE

• FALSE

Multiple Choice

Works in process are not included in inventories.

• TRUE

• FALSE

Multiple Choice

IN JIT inventory is waste.

• TRUE

• FALSE

Multiple Choice

In the PULL system it's a good idea to always have extra inventory.

• TRUE

• FALSE

Multiple Choice

When you manage inventory you have to specify the shape and % of the goods in stock.

• TRUE

• FALSE

Multiple Choice

We keep inventory because we need solutions for uncertainty.

• TRUE

• FALSE

Multiple Choice

You don't have extra finished product for unexpected orders

• ADVANTAGE OF JIT

• DISADVANTAGE OF JIT

Multiple Choice

The flow of goods from warehouse to shelves is better.

• ADVANTAGE OF JIT

• DISADVANTAGE OF JIT

Multiple Choice

Production times and work hours coincide with demand.

• ADVANTAGE OF JIT

• DISADVANTAGE OF JIT

Multiple Choice

There is little stock so you can't make any mistakes!

• ADVANTAGE OF JIT

• DISADVANTAGE OF JIT