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Reasons for Inventory Types of Inventory

 Ensure that Parts and Materials used meet  Raw Materials (warehouse)
Standards  Spare Parts (warehouse)
 Timeliness of Work Production and  Work in Progress (assemblies)
Elimination of Wait States  Pipeline (in transit such as materials or parts
carried on work vehicles)
 To act as Buffers against Variation in
Supplies and Demands  Cycle Stock (set aside for high demand)
 Safety Stock (in excess of needed kept as hedge)
 Protection against Uncertainty
 Support Stock (nuts, bolts, bulbs, common
 Economies of Scale fittings)

Inventory Costs Inventory Management

 Storage and Handling Effectively managing the flow of parts and materials by
 Insurance identifying the causes in variations in average demand
while minimizing inventory costs.
 Spoilage, Pilferage and Damage  Economic Order Quantity (1915 F.W. Harris at
 Obsolescence Westinghouse) (EOQ)
 Property Taxes EOQ = 2 x Ave Yr Demand x $ per Order
 Warehouse Maintenance and Depreciation Holding Cost ($ per Yr)
 Procurement and Processing (demand is uniform, lead time is zero, no quantity
 Administration discounts, no constraints on storage capacity)
 Reorder Levels (based on use and quantity discounts)
 Safety Stock (based on service levels priorities)

Policy and Procedures Definitions

Policy Procedures
Policies, Standards and  The intent and  Rules, steps or
management philosophy
Procedures for dealing with a given
standards for how
work is performed
set of circumstances or
 Intended to guide
thinking and decision-
making by employees
 It is under policy that
the plan is developed