BOOK: Operations Management in the Supply Chain – Decisions and Cases, Roger Sch
ID: 424512 • Letter: B
Question
BOOK: Operations Management in the Supply Chain – Decisions and Cases, Roger Schroeder, Susan Meyer Goldstein, 7th edition, McGraw Hill Education, 2016
Text Overview Discussion Questions
1. Discuss primary reasons for carrying inventory
2. Discuss the cost of inventory
3. What is the difference between Independent and Dependent Demand?
4. Discuss the differences between Continuous and Periodic Review
5. Outline the mathematical progression and explain the need for Economic Order Quantity and Explain why EOQ evolved into SOQ and the advantages off doing so.
Explanation / Answer
1. Primary reasons for carrying/holding inventory :
a) Avoid shortages : Demand could be unpredictable in many industries. Forecasted demand not always give perfect picture of future. Hence demand may vary slightly or largely from forecasted demand. In situation of less demand then forecasted surplus arises but in situation of more demand than forecasted shortages may occur that can cause huge damage to the customers satisfaction, brand image and goodwill. In order to get oneself prepared for such shortages company keeps invenyory at hand as buffer stock. This is the main reason for keeping inventory.
b) It also provides hedge against the possible future price rise - There could be rise in input cost to which the the producetion may cost more than usual for a time period. saving inventory for futire also serves as hedging for such ris ein prices.
c) It also hedges against any disruption that may occur at production and may result in deliveries provlem. At such disruption in manufacturing the inventory can be useful a lot.
d) It can also be stored for strategic reasons such as keeping the situation firms may offer some sales promotional tactics like free samples, buuy 2 get 1 free etc for which extra tsock would be reuiqred over the stock required to meet demand. In such situation inventory helps.
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