Business: Inventory and Safety Stock

816 Words Sep 10th, 2013 4 Pages
1. How does the cost of carrying inventory impact the traditional earning statement of the enterprise?
Inventory is a significant cost center, the reduction of a firms inventory commitment can by a few percentage can result in dramatic profit improvement.

2. What is the relationship between service level, uncertainty, safety stock and order quantity? How can trade-offs between the elements be made?

Inventory policy: Guidelines about what to purchase, when to take action and in what quantity.

Service level: Performance target specified by management. Defines inventory performance objectives. Measure in terms of order cycle and includes time, case fill rate, line fill rate, order fill rate and any combination of these.
…show more content…
4. What is the difference between the probability of stock out and the magnitude of a stock out?
A stockout, or out-of-stock (OOS) event is an event that causes inventory to be exhausted. While out-of-stocks can occur along the entire supply chain, the most visible kind are retail out-of-stocks in the fast moving consumer goods industry (e.g., sweets, diapers, fruits). Stockouts are the opposite ofoverstocks, where too much inventory is retained.

5. The fill rate represent the magnitude of a stockout rather than the probability. The case fill rate is the percentage of units that can be filled when requested from availbale inventory.

Demand uncertainty: Rate of sales during inventory replenishment.
Performance cycle Uncertainty: Invetory replenishment time variations.

6. Inventory overall declining, inventory held by manufacturers are increasing. Why?

7. What are the differences between reactive and planning inventory logics. What are the advantages of each?

Reactive or pull inventory system as the name implies, responds to a channel members inventory needs by drawing the product through the distribution channel.

Inventory planning method use a common information base to coordinate inventory requirements across multiple locations or stages in the supply chain. Planning activities may occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple
Open Document