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INVENTORY MANAGEMENT (3. Five costs (FACILITY COSTS (This is the most…
INVENTORY MANAGEMENT
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4. Three service classes
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Scheduled Delivery: Timing or rate of delivery as required by a buyer, or as agreed between a buyer and a seller, for goods or services purchased for a future delivery period as well as ensure daily production operation is running smoothly.
Critical: Product that is in urgent need, such as medical emergency.
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3. Five costs
FACILITY COSTS
This is the most basic cost of the warehouse, which includes depreciation on the building and interior racks, utilities, building insurance, and warehouse staff.
For example, facility cost involve rental costs, mobile and static equipment cost, utility and compliance cost.
HUMAN CAPITAL COSTS
It is about the costs that is applied to manage the flow of stock of an organization and it is a measure of the economic value of an employee's skill set.
For example, in an organization, they need to hire worker to perform activities like moving stock, handling stock, and also counting stock.
PROCUREMENT COSTS
The most basic type of cost involved, which is related to the cost of purchasing or it is also known as purchase price. It is also included inbound transport.
Developing long-term, mutually beneficial partnerships with reliable suppliers can maintain the low inventory purchase costs . Suppliers can offer price/volume discounts or price contracts to keep the costs at a reasonable level.
MANAGEMENT COSTS
This cost is related to personnel and information technology charges. It is also involve in the process of planning and controlling the budget of a business.
For example, management cost is needed to keep the operation of an organization to run smoothly as it is to pay the expenses of personnel in that company who manage the operation.
FINANCE COSTS
For example, when capital is invested in inventory, the cost of finance is interest or the lost of opportunity to invest in other inventory or things.
It is also known as the Cost of Finances (COF), which is the cost and interest and other charges involved in the borrowing of money to build or purchase assets.
5. Strategies
Postponement Logistics: It is a deliberate action to delay final manufacturing or distribution of a product until receipt of a customer order. This reduces the incidence of wrong manufacturing or incorrect inventory deployment.
Vendor Managed Inventory (VMI): It is a model that the buyer of a product provides information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material. The producer no need to hold extra stock and also only need to pay for amount of stock that is used to prevent wastage of money.