Inventory Management and Risk Pooling - Introduction

7 important questions on Inventory Management and Risk Pooling - Introduction

In what ways can inventory appear in the supply chain?

  • Raw material
  • Work-in-progress (WIP) inventory
  • Finished product inventory

Why is inventory held? Name four reasons.

  1. Unexpected changes in customer demand
  2. The presence in many situations of a significant uncertainty
  3. Lead times
  4. Economies of scale offered by transportation companies

Why is customer demand uncertainty increased?

Due to:
- The short life cycle of an increasing number of products
- The presence of many competing products in the marketplace
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What are the two critical issues in inventory management and demand forecasting?

  1. What to order
  2. When to order it

What is an inventory policy?

The strategy, approach, or set of techniques used to determine how to manage inventory.

What are order costs?

Order costs consists of two components: the cost of the product and the transportation costs. The product cost may exhibit economies of scale.

What are inventory holding costs?

Inventory holding costs consists of:
  • State taxes, property taxes, and insurance on inventories
  • Maintenance costs
  • Obsolescence cost
  • Opportunity costs

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