Briefly explain the following: I) Dependent values independent demand Ii) ABC an

Question

Briefly explain the following: I) Dependent values independent demand Ii) ABC analysis ( or 80-20 rule) in inventory management III) Trade off between inventory carrying the cost versus number of warehouses. Briefly explain the following: I) Dependent values independent demand Ii) ABC analysis ( or 80-20 rule) in inventory management III) Trade off between inventory carrying the cost versus number of warehouses. I) Dependent values independent demand Ii) ABC analysis ( or 80-20 rule) in inventory management III) Trade off between inventory carrying the cost versus number of warehouses.

Explanation / Answer

1. Dependant demand is the demand for the kind of materials that in turn gets influenced by the change in demand of some other material. For Eg : A reduction in the demand for cars leads to the reduction in demand for tyres. Hence tyres demand is dependant on the demand of cars. Independant demand is not influenced by the demand of any other material. For Eg : The demand of the carpets is not influenced by the demand of any other home furnishing/ accesory.

2. ABC analysis involved cassification of inventory as per the value; which is the product of the rate vs the volume of the inventory held. The items that have a higher value which are classified under category A should be tightly controlled and monitored for inventory levels; B is the category that requires moderate controls and have mid level value and the category C of the inventory is where the value is low and loose controls / no control is sufficient.

3. The inventory carrying cost increases when the inventory held at hand increases; to be able to handle a large stock a larger number of warehouses will be required. The warehousing cost entails the inventory carrying cost in turn. For Eg : Johnson & Johnson product such as Baby wipes which is a slow moving product has a higher inventory carrying cost and needs a larger warehousing space.

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