Distinguish among cycle, safety, pipeline, and speculative stock
Cycle stock is the inventory amount which is planned to be used during a particular period of time. This period is mostly defined as the period between raw material orders, or the time between the cycles of production, that is, for work in process and finished products. Cycle stock is a part of on-hand inventory that includes all items possessed by the seller. Safety stock can be viewed as buffer inventory. Buffer inventory is the inventory that is not in the plan to be consumed but it is held to be used when an emergency arises. Typically, safety stock is dipped into if forecast is exceeded by the actual demand, or when the output of production is less than expected. If the actual demand exceeds the forecast, the planned cycle stock will be less and will not satisfy the excess demand. Additionally, if the production output is less than planned, it might be that the company was not able to produce according to the plan or procure because the planned stock might have been enough to supply the demand. In both cases, there would be a backorder in the SKU because of the absence of enough safety stock. In the industries where customer service is a vital factor of success, safety stock is important (Minner, 2012) .
Pipeline stock, or pipeline inventory, are the products not sold but are also not in the hands of the company. These goods might have left the warehouse of the company but are, however, still within the distribution chain of the firm. On the other hand, a speculative stock is a stock used by a trader to speculate. The stock fundamentals do not indicate any sustainable business model or apparent strength. Instead, the trader has an expectation that such things might come someday because of various reasons. In the present moment, however, the stock’s price is comparatively low and has a high degree of risk.
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Define what is meant by inventory carrying costs and list its primary components
Inventory carrying costs, or simply carrying costs, is a term in accounting that identifies all expenses of a business related to storing and holding unsold goods. The sum figure would be inclusive of related costs of salaries, warehousing, handling and transportation, insurance, taxes, shrinkage, depreciation, and opportunity costs. Total carrying costs are often indicated as a percentage of the total inventory of a business in a certain time period. The figures are used in determining how much income would be earned based on current levels of inventory. It is also important in helping a business determine whether there is a need to produce more or less in an effort to maintain a favorable stream of income. The primary components of carrying costs are capital cost, inventory service cost, storage space cost, and inventory risk cost.
What are the ordering costs, and what is the tradeoff between inventory carrying costs and ordering costs?
Ordering costs are the expenses incurred in creating and processing an order to a supplier (Choi, 2014) . They are included in determining the economic order quantity for an item of inventory. Examples include the cost for preparing a purchase requisition, cost for preparing a purchase order, cost of labor needed in inspecting goods upon receipt, cost to put away goods after being received, cost of processing the supplier invoice, and cost of preparing and issuing a payment to the supplier. There is a tradeoff between inventory carrying costs and ordering costs because they are both inventory costs.
Distinguish between a fixed order quantity and fixed order interval system. Which one generally requires more safety stock? Why?
The fixed order quantity is the system of inventory control, wherein the minimum and maximum levels of inventory are fixed, and minimum and fixed amount of inventory can be replenished when the level of inventory reaches the minimum stock level, or the auto set reorder point. It is helpful in reducing the reorder mistakes, preventing unnecessary funds blockage, managing the storage capacity efficiently, and ensuring regular replenishment of inventory items. It assumes that each variable is certainly known and remains constant. These variables include sales, holding cost, unit cost, stockout cost, and others.
A fixed order interval system, on the other hand, is an inventory control system method. It is also referred to as fixed reorder cycle inventory model. A fixed interval is developed through keeping track of product’s demand. It is applied in management of the supply of the raw material. Between the fixed order quantity and fixed order interval system, the first requires more safety stock as it runs on the assumption that the variables would remain constant.
Explain the logic of the EOQ model and the assumptions associated with the model
ECQ (Executive Core Qualifications) are the leadership skills designated by OPM (Office of Personnel Management) and are required to enter SES (Senior Executive Service). It is a model used in choosing federal executives across government positions (Ravanshadnia & Ghanbari, 2014) . The assumptions of this model are the ability to bring a strategic change, ability to lead people to achieve the vision, mission, or goals of an organization, ability to meet customer expectations and organizational goals, ability to strategically manage human, financial, and information resources, and finally the ability to build coalitions with other parties, agencies, and organizations to achieve shared goals.
References
Choi, T. M. (2014). Handbook of EOQ inventory problems. AMC , 10 , 12.
Minner, S. (Ed.). (2012). Strategic safety stocks in supply chains (Vol. 490). Springer Science & Business Media.
Ravanshadnia, M., & Ghanbari, M. (2014). A hybrid EOQ and fuzzy model to minimize the material inventory in ready mixed concrete plants. In 2014 IEEE International Conference on Industrial Engineering and Engineering Management (pp. 526-530). IEEE.
