11-3 Introduction: A Balancing Act for Management Both the presence and absence of inventory contribute to value and to costs. – Too much inventory is an investment that will provide no return. – Too little inventory results in missed or late sales and deliveries. Carrying the correct amount of inventory is a difficult balancing act.
11-7 Decoupling: Reducing the direct dependency of a process step on its predecessor. This could be in a process or in the supply chain. – Decouple customer from supplier and machine from machine – Disruptions, if decoupled, dont have as serious of an impact – Decoupling enhances reliability and response time Why Should Businesses Carry Inventory?
11-10 No Financial returns - Inventory is an investment that should provide a financial return; excess inventory is an investment that provides no return. Associated costs - In addition to the cost of purchasing it, inventory also has other carrying costs: Cost of storage, Cost of insurance, Reduction in flexibility Why Should Businesses Avoid Carrying Too Much Inventory?
11-11 Reduces managements ability to make quick decisions (reduces flexibility) Less adaptability to changing market conditions Why Should Businesses Avoid Carrying Too Much Inventory?
11-18 Costs and Benefits Order cost: The fixed cost associated with ordering inventory. – Changeover (setup) cost: The cost of changing equipment from producing one product or service to another. Analogous to order cost. Carrying cost: Costs associated with carrying inventory. Insurance, storage, opportunity cost of money tied up in inventory. Stockout cost: Costs associated with not having inventory when a customer wants it. Purchasing cost: Cost of purchasing the actual inventory. Sometimes quantity discounts lower this cost, but this comes at the expense of raising carrying costs. Buying in Bulk (discounted)…..