An inventory is a stock or store of goods. Firms typically stock hundreds

An inventory is a stock or store of goods. Firms typically stock hundreds
or even thousands of items in inventory, ranging from small things such as pencils, paper clips, screws, nuts, and bolts to large items such as machines, trucks, construction equipment, and airplanes. Naturally, many of the items a firm carries in inventory relate to the kind of business it engages in and are essential to the conduct of that business. Therefore, effective inventory management is important for the successful operation of most firms and their supply chains. Poor inventory management can hamper operations, diminish customer satisfaction, and increase operating costs. Effective inventory management can help keep operations running smoothly and efficiently, and contribute to customer satisfaction.

CONCEPT REVIEW:

-Effective inventory management involves numerous decisions. An inventory classification system that helps prioritize the items in inventory can help the firm focus its efforts on the most important items while maintaining effective inventory control of all items. Firms must also decide how to monitor their inventory levels, how much of each item to order, and when to place orders. In this exercise we will look at the A-B-C approach to inventory classification, the basic economic order quantity model, reorder point ordering, and related concepts regarding inventory management.
-From the EOQ, Q is 100, and annual demand is 500. What is the length of the order cycle?
-Daily usage is 5, and lead time to replenish is 12 days. What is the ROP?
-A manager wants no more than 5% risk of stockout. What value of z is appropriate?

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