IDIS 343 Exam 1 Questions with Correct Answers| Latest Update Guaranteed Success
Inventory Management Philosophies (Supply-Driven) - Supply quantities and timing are
unknown
- All supply must be accepted and processed
- Inventories are controlled through demand
Inventory Management Philosophies (Aggregate Control) Classification of items:
- Groups items according to their sales level based on the 80-20 principle (80% of sales come
from 20% of inventory SKU's (Stock Keeping Unit))
- Allows different control policies for 3 or more broad product groups
ABC Analysis (Inventory Stratification) Ranking System
- Developed in 1951 by H. Ford Dicky of General Electric.
- Suggested that GE classify items according to relative sales volume, cash flows, lead time, or
stock-out cost.
- Most important inventory put in Group A. (Generate top 60%)
- Lesser impact goods put in Groups B and C respectively. (Generate next 30%, and then the
rest)
A items = 5 points
B items = 3 points
C items = 1 point
Supply Chain Structure (Material Flow) Goes from manufacturer to end user
Supply Chain Structure (Information flow) Goes both ways from manufacturer and end user
Supply Chain Structure (Cash flow) End user to manufacturer
,3 Components of Logistics Cost - Transportation Costs (63%)
- Inventory carrying costs (33%)
- Administration Costs (4%)
Product Availability (Demand Satisfied/Total Demand) * 100
Weight to Bulk Ratio Increased ratio means lower shipping costs
Value-weight Ratio When shipping high value products, you can use premium
transportation. Low cost items such as coal don't require this
Substitutability Want to offer high level customer service or else customers will just switch
to similar competitor
Risk It could break, expire (food items), hazardous material, perishable, theft
Delta P Trading margin x sales response rate x annual sales
Delta C Annual carrying cost x std product cost x demand std deviation over replenishment
lead time x Delta z
ABC Analysis cont'd - Identify the SKUs that management should spend time on
- Prioritize SKUs by their value to firm
- Create logical groupings
- Adjust as needed
, A Items - Very few high impact items are included
- Require the most managerial attention and review
- Expect many exceptions to be made.
B Items - Many moderate impact items (sometimes most)
- Automated control w/ management by exception
- Rules can be used for A (but usually too many exceptions)
C Items - Many if not most of the items that make up minor impact
- Control systems should be as simple as possible
- Reduce wasted management time and attention
- Group into common regions, suppliers, end users
How else to classify inventory? - Criticality to Operations
- Profitability
- Usage rate * Volume Dollar
- Value & # Customer Transactions Dollar
- Value & Criticality
- Multiple dimensions (cluster analysis)
ABC Analysis (Relative Ranking) Ranking of an item is determined based on its position
compared to other items in the analysis
ABC Analysis (Absolute Ranking) Items are ranked based on a predetermined scale or a
measurement system
Inventory Management Philosophies (Supply-Driven) - Supply quantities and timing are
unknown
- All supply must be accepted and processed
- Inventories are controlled through demand
Inventory Management Philosophies (Aggregate Control) Classification of items:
- Groups items according to their sales level based on the 80-20 principle (80% of sales come
from 20% of inventory SKU's (Stock Keeping Unit))
- Allows different control policies for 3 or more broad product groups
ABC Analysis (Inventory Stratification) Ranking System
- Developed in 1951 by H. Ford Dicky of General Electric.
- Suggested that GE classify items according to relative sales volume, cash flows, lead time, or
stock-out cost.
- Most important inventory put in Group A. (Generate top 60%)
- Lesser impact goods put in Groups B and C respectively. (Generate next 30%, and then the
rest)
A items = 5 points
B items = 3 points
C items = 1 point
Supply Chain Structure (Material Flow) Goes from manufacturer to end user
Supply Chain Structure (Information flow) Goes both ways from manufacturer and end user
Supply Chain Structure (Cash flow) End user to manufacturer
,3 Components of Logistics Cost - Transportation Costs (63%)
- Inventory carrying costs (33%)
- Administration Costs (4%)
Product Availability (Demand Satisfied/Total Demand) * 100
Weight to Bulk Ratio Increased ratio means lower shipping costs
Value-weight Ratio When shipping high value products, you can use premium
transportation. Low cost items such as coal don't require this
Substitutability Want to offer high level customer service or else customers will just switch
to similar competitor
Risk It could break, expire (food items), hazardous material, perishable, theft
Delta P Trading margin x sales response rate x annual sales
Delta C Annual carrying cost x std product cost x demand std deviation over replenishment
lead time x Delta z
ABC Analysis cont'd - Identify the SKUs that management should spend time on
- Prioritize SKUs by their value to firm
- Create logical groupings
- Adjust as needed
, A Items - Very few high impact items are included
- Require the most managerial attention and review
- Expect many exceptions to be made.
B Items - Many moderate impact items (sometimes most)
- Automated control w/ management by exception
- Rules can be used for A (but usually too many exceptions)
C Items - Many if not most of the items that make up minor impact
- Control systems should be as simple as possible
- Reduce wasted management time and attention
- Group into common regions, suppliers, end users
How else to classify inventory? - Criticality to Operations
- Profitability
- Usage rate * Volume Dollar
- Value & # Customer Transactions Dollar
- Value & Criticality
- Multiple dimensions (cluster analysis)
ABC Analysis (Relative Ranking) Ranking of an item is determined based on its position
compared to other items in the analysis
ABC Analysis (Absolute Ranking) Items are ranked based on a predetermined scale or a
measurement system
