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Terms in this set (72)
What is the lifeblood of supply chain? Inventory
What is the inventory turns formula? the annual Cost of Goods Sold / the average annual inventory
Example of a company who has annual Cost Inventory turns would be 4 = $200,000 / $50,000
of Goods Sold of $200,000 and the average
annual inventory has been $50,000.
, Example of inventory turns: Management in the above example sets the inventory turns
goal to 8. Currently they are at 4. If cost of goods remain the
same (same sales), $200,000, then theoretically, they should
get by with $25,000 annual inventory, $200,000 cost of goods
sold / 8 inventory turns =$25,000
The savings the first year would be $25,000 = $50,000 -
$25,000
What are the three major components of 1) Capital Cost
inventory carrying cost? 2) Storage Cost
3) Risk Cost
What is Capital Cost? When you purchase inventory you not only pay the price for the
inventory and inspection cost, but transportation and if
overseas customers charges. This gets inventory on your
books. Capital cost is the cost of using your money and not
getting a return. If you have money in inventory and the going
money rate is 6%, then the capital cost is 6% of the amount you
have in inventory. Another way of thinking about this is if you
borrow funds and the rate is 6% interest and buy inventory with
it, you will pay the bank 6% in interest over a period of time. So,
it cost you 6% interest to own the inventory.
What is Storage Cost? The cost of the warehouse space, the cost of the warehouse
labor, cycle counting, and any equipment. This will increase as
the amount of inventory increases.
What is Risk Cost? When inventory is stored it is at risk. It can become damaged -
there can be accidents in the distribution center that makes the
inventory no longer usable (a fork truck crushes a box of small
copper parts), it can be pilfered (stolen), it can become
obsolete, etc.
Inventory Carrying Costs Example From our accountants we are told the inventory carrying cost in
this company is 30% and this cost is annual (every year).
Before the improvement the average annual inventory was
$50,000, then the cost of carrying the inventory every year was
$50,000 * 30% = $15,000.
But since the inventory was reduced to $25,000, the inventory
carrying cost is $25,000 * 30% = $7,500.
So, the difference is $7,500 = $15,000 - $7,500. So, with the
new reduction in inventory, the company is saving $7,500 each
year that they do not have to pay in interest, storage cost, and
risk cost that are written off.
Days of Supply Example There are 600 pieces on hand with an average daily usage of
30. The days of supply for this part is 600/30 = 20 days. So, in
20 days, the part should run out.
ABC analysis 20% of the parts will contribute to 80% of the inventory value
ABC Analysis Example You have a part whose order qty is 800. The average inventory
for this part over time is 400 (800/2). A fixed lot multiple of 20
would generate an order in the ERP System for 60 if the net
requirement was 59.
Average Inventory Calculations with Safety Order qty is 800 and safety stock is 100. The average inventory
Stock is (800/2) + 100 = 500
How much does logistics represent of GDP in Logistics represents between 8 and 18 percent of the GDP in
countries? Is it lower or higher in developing countries. Developing countries will have a higher percentage.
countries?
Every industry has its own _________ and Every industry has its own characteristics and each company
each company has its own _______. has its own variations in strategy, size, range of product, market
coverage, etc.
M
G
S
C
-
4
9
2
E
x
a
m
1
Students
also
studied
Fla
Terms in this set (72)
What is the lifeblood of supply chain? Inventory
What is the inventory turns formula? the annual Cost of Goods Sold / the average annual inventory
Example of a company who has annual Cost Inventory turns would be 4 = $200,000 / $50,000
of Goods Sold of $200,000 and the average
annual inventory has been $50,000.
, Example of inventory turns: Management in the above example sets the inventory turns
goal to 8. Currently they are at 4. If cost of goods remain the
same (same sales), $200,000, then theoretically, they should
get by with $25,000 annual inventory, $200,000 cost of goods
sold / 8 inventory turns =$25,000
The savings the first year would be $25,000 = $50,000 -
$25,000
What are the three major components of 1) Capital Cost
inventory carrying cost? 2) Storage Cost
3) Risk Cost
What is Capital Cost? When you purchase inventory you not only pay the price for the
inventory and inspection cost, but transportation and if
overseas customers charges. This gets inventory on your
books. Capital cost is the cost of using your money and not
getting a return. If you have money in inventory and the going
money rate is 6%, then the capital cost is 6% of the amount you
have in inventory. Another way of thinking about this is if you
borrow funds and the rate is 6% interest and buy inventory with
it, you will pay the bank 6% in interest over a period of time. So,
it cost you 6% interest to own the inventory.
What is Storage Cost? The cost of the warehouse space, the cost of the warehouse
labor, cycle counting, and any equipment. This will increase as
the amount of inventory increases.
What is Risk Cost? When inventory is stored it is at risk. It can become damaged -
there can be accidents in the distribution center that makes the
inventory no longer usable (a fork truck crushes a box of small
copper parts), it can be pilfered (stolen), it can become
obsolete, etc.
Inventory Carrying Costs Example From our accountants we are told the inventory carrying cost in
this company is 30% and this cost is annual (every year).
Before the improvement the average annual inventory was
$50,000, then the cost of carrying the inventory every year was
$50,000 * 30% = $15,000.
But since the inventory was reduced to $25,000, the inventory
carrying cost is $25,000 * 30% = $7,500.
So, the difference is $7,500 = $15,000 - $7,500. So, with the
new reduction in inventory, the company is saving $7,500 each
year that they do not have to pay in interest, storage cost, and
risk cost that are written off.
Days of Supply Example There are 600 pieces on hand with an average daily usage of
30. The days of supply for this part is 600/30 = 20 days. So, in
20 days, the part should run out.
ABC analysis 20% of the parts will contribute to 80% of the inventory value
ABC Analysis Example You have a part whose order qty is 800. The average inventory
for this part over time is 400 (800/2). A fixed lot multiple of 20
would generate an order in the ERP System for 60 if the net
requirement was 59.
Average Inventory Calculations with Safety Order qty is 800 and safety stock is 100. The average inventory
Stock is (800/2) + 100 = 500
How much does logistics represent of GDP in Logistics represents between 8 and 18 percent of the GDP in
countries? Is it lower or higher in developing countries. Developing countries will have a higher percentage.
countries?
Every industry has its own _________ and Every industry has its own characteristics and each company
each company has its own _______. has its own variations in strategy, size, range of product, market
coverage, etc.
