Answer to Question #276812 in Management for jean

Question

Explain the importance of inventory, types of inventory, and key decisions and costs;

2. Describe the major characteristics that impact inventory decisions;

3. Describe how to conduct an ABC inventory analysis;

4. Explain how a FOQ inventory system operates and how to use the EOQ and safety stock models;

5. Explain how a fixed-inventory system operates; and

6. Describe how to apply the single-period inventory model.

Answer 1

1.The importance of inventory

• Accurate Order Fulfillment – Taking the time to develop a more robust plan can help brands avoid inaccurately filled orders, high return volumes and a loss of customer base.
• Better Inventory Planning and Ordering – It’s difficult to gauge which products are needed if there isn’t a clear way to tell what products are already stocked. Poor stocking can easily lead to overstock items, and some of these items might not be strong sellers. Detailed inventory management mitigates these issues, allowing warehouse managers to refresh inventory only when needed. It’s both space and cost-effective.
• Increased Consumer Satisfaction – Customers that shop online are eagerly awaiting their orders, and there’s nothing worse than when their orders arrive not-as-described, late or damaged. When that happens, buyers are less likely to purchase from the brand again. On the other hand, good inventory management leads to orders being fulfilled more quickly and shipped out to customers faster.

Types of inventories

1. raw materials
2. work-in-progress
3. finished goods
4. packing material
5. MRO supplies

Key decisions and costs

1. Opportunity Cost: Opportunity cost is the cost of opportunity lost. An opportunity cost is the benefit given up or sacrificed when one alternative is chosen over another
2. Relevant Cost: Relevant costs are those future cost which differ between alternatives. Relevant costs may also be defined as the costs which are affected and changed by a decision
3. Differential Cost: Differential cost is the difference in total costs between any two alternatives. This means that differential cost is only the difference in the amount of the two costs.
4. Sunk Cost: A sunk cost is the cost that has already been incurred. It is a past or committed cost, cost gone forever. Sunk costs are costs that have been created by a decision in the past and cannot be changed once they have been incurred and cannot be avoided by any decision that is made in the future.
5. Imputed Cost: Imputed costs are costs not actually incurred in some transaction but which are relevant to the decision as they pertain to a particular situation. These costs do not enter into traditional accounting systems.

2:6 characteristics that influence the inventory decisions

1. Financial Factors: Factors such as the cost of borrowing money to stock enough inventory can greatly influence inventory management. The tax costs associated with stocking inventory is another factor that can influence inventory management.
2. Suppliers :Suppliers can have a huge influence on inventory control. Successful businesses require reliable suppliers in order to plan spending and arrange production. An unreliable or unpredictable supplier can have huge knock-on effects for inventory control.
3. Lead Time: Lead time is the time it takes from the moment an item is ordered to the moment it arrives.
4. Product Type: Inventory management must take into consideration the different types of products in stock.
5. Management: Ultimately, responsibility for managing your business’ inventory sits with you and any co-owners. While you may have multiple employees acting as managers to oversee inventory processes, they typically will not have the same stake in the business as you do.
6. External Factors: There are multiple external factors that may affect inventory control. For example, economic downturns may occur and this is something that you will generally have very little control over.

3.how to conduct an ABC inventory analysis

1. Step 1: Gather All Inventory Data. ...
2. Step 2: Find The Total Value of Each Item. ...
3. Step 3: Calculate the Total Value of Your Inventory. ...
4. Step 4: Calculate the Percentage of Value Each Inventory Item Offers. ...
5. Step 5: Classify Your ABC Inventory.
6. Schedule Follow-Up Activities

4.how a FOQ inventory system operates and how to use the EOQ and safety stock models

• Fixed order quantity is an inventory management system in which replenishment stock is ordered when the stock reaches a reorder point and the replenishment quantity is kept fixed irrespective of external circumstances.
• The economic order quantity or production run model indicates how many units to order or produce. But managers are also concerned with the order point. Quantity of Re-order Point and Safety Stock reflects the level of inventory that triggers the placement of an order for additional units.

5.how a fixed-inventory system operates

t is an inventory control method where orders are periodically placed, but the order quantity is different every time, and is also called Fixed Period Deficit Ordering System. The method has the following features: 

* An order is periodically placed.

* The order quantity is different every time.

* Even relatively large fluctuations in demand can be handled properly.

* Even seasonal variation can be handled modestly.

* The inventory volume can be reduced compared with ordering point system.

* A-group items are usually best for this method.

* Longer lead time is acceptable.

* Longer time for paperwork is needed.

6.how to apply the single-period inventory model

A single period inventory model is a business scenario faced by companies that order seasonal or one-time items. There is only one chance to get the quantity right when ordering, as the product has no value after the time it is needed. There are costs to both ordering too much or too little, and the company's managers must try to get the order right the first time to minimize the chance of loss.