Inventory Management

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INVENTORY MANAGEMENT
* Types of Inventory
* Inventory Costs
* Independent – Demand Items and Inventory Costs
* Inventory Monitoring
* Production Management Systems
* Other Issues in Inventory Management

What is Inventory?
* An investment in the sense that it requires that the firm tie up its money, thereby forgoing certain other earnings opportunities. * The higher a firm’s average inventories, the larger the dollar investment and cost required and vice versa.

Meaning and Component of Inventory Management
* It involves the control of the assets that are produced to be solid in the normal course of the firm’s operations. * Primarily involve questions of how much inventory should be ordered and when the order should be placed. * Accumulated either by purchase or production.

* In a particularly period, Inventory costs are assigned too expense for the portion sold, and to assets for the portion not solid. * Generally, classified according to the nature of demand as dependent–demand items or independent–demand items.

Purpose of Inventory Management
* To uncouple the operations of the firm.
* To make each function of the business independent of each other function. * Delays or shutdowns in one area no longer affect the production and sale of the final product.

Two aspects of Inventory require some elaboration.
* Types of inventory
* Appropriate level of inventory
TYPES OF INVENTORY
The general categories of inventories include:
* Raw Materials Inventory
* Work – in – Process Inventory
* Finished Goods Inventory

Raw Materials Inventory
* These are items purchased and used as primary inputs in the production of finished products. * It gives the firm flexibility in purchasing; buying does not have to be geared directly to production. * Consists of basic materials purchased from other firms to be used in the firm’s production operations.

Work – In – Progress Inventory
* This refers to the costs of uncompleted items that are in the process of being manufactured or completed items that will form part of the finished products. * Consist of partially finished food requiring additional work before they become finished goods. * Under these item include:

* Raw Materials cost
* Direct Labor Costs
* Allocated Factory Overhead

Finished Goods inventory

* This refers to items that are 100% complete and constitute salable stock. Like Work-In-Progress, the costs of finished goods includes raw materials costs, direct labor costs and allocated factory overhead. * Consist of goods on which the production has been completed but that are not yet sold.

Stock of Cash
* Carried by a firm is simply a special type of inventory. * To make the payment of bills independent of the collection of accounts due. When cash is kept on hand, bills can be paid without prior collection of accounts.

Differing Viewpoints about Inventory Level
* Financial Manager
* Marketing Manager
* Manufacturing Manager
* Purchasing Manager

Financial Manager
* General disposition toward inventory levels is to keep them low. * Must police the inventories, making sure that the firm’s money is not being unwisely invested on excess resources. * Should consider such changes from the standpoint of benefits versus costs.

Manufacturing Manager
* Major responsibility is to make sure that the production plan is correctly implemented and that results in the desired quantity of finished goods of acceptable quality at a low cost. * Prefers to keep raw materials inventories high to avoid production delays and favors high finished goods inventories by making large production runs for the sake of lower unit production costs.

Purchasing Manager
* Concerned solely with the raw materials inventories.

INVENTORY COSTS...
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