Logistics Midterm Pointers

I.A

Handout 5

Physical space occupied by the inventory - Costs of Inventory

 This cost ranges from 3% to 10%

 Includes building rent or depreciation, utility costs, insurance, and taxes

Handling of inventory - Costs of Inventory

 This cost ranges from 4% to 10%

 Includes equipment lease or depreciation, power and operating costs

Ordering costs - Costs of Inventory

 Includes fixed and variable costs associated with placing an order to purchase additional
inventory.

Carrying costs - Costs of Inventory

 Also knows as holding costs

 these are costs involved in the acquisition storage of inventory items.

Maintenance, repair, and operations (MRO) - Types of Inventory

 these are items a business needs to operate, such as office equipment, packing boxes, and
tools and parts to repair equipment.
 Example: repairing a bike requires tools such as screwdrivers and pliers.

Handout 6

Overtime/idle time - Demand and Supply Options

 This involves the ability/willingness of the workforce to run some over time for periods
with very high demand.

New or counter-seasonal demand - Demand and Supply Options

 This can be used to balance demand on particular time periods.

Job shop - The Process Decision

 This usually operates on a relatively small scale.

 It is used when a volume of high variety goods or services will be needed.
Hire and lay off employees - Demand and Supply Options

 This involves flexibility in the workforce due to demand peaks and decline.
 It can also have risks and costs in terms of unemployment and new hiring training costs.

Handout 7

Focus – Outsourcing

 Outscourcing non-core activities helps the business to concentrate on its core functions
like sales and marketing.
 Non-core activites are daily operations of a firm that add a little value to the overall
profitability of the business.

Quality problems - Outsourcing

 This involves unmatched capacities and inexperienced capabilities of outsourcing

providers to perform outsourced tasks.

In-Sourcing - Other Supply Chain Strategies

 This is the opposite of outsourcing.

 Involves performing previously outsourced functions, in house.

Few Suppliers - Other Supply Chain Strategies

 This strategy involves establishing a long-term relationship with a small number of

suppliers.
 The goal of this strategy is to enhance learning curve through collaboration.

Near Sourcing - Other Supply Chain Strategies

 This involves a strategic placement of business functions or activities close to the

location where products are sold to improve efficiency and reduce costs.

Security risk - Outsourcing

 This involves losing sensitive data and confidentiality.

I.B

Handout 5

Capital Cost - Costs of Inventory

  The value of this cost depends on current interest rates which can range from 5% to 25%.

Variable Costs - Costs of Inventory

 Are expenses that vary with output.

 May include wages, utilities, and materials used in production among others.

Fixed Costs - Costs of Inventory

 Fixed costs are expenses that are independent of output and are incurred no matter what,
such as rent, building, and machinery among others.

Economic Order Quantity – Computation

Handout 6

Jockeying - Waiting Lines

 It occurs when a costumer changes from one line to another.

Assemble-to-order (ATO) - Production Strategies

 Products are combined from components after the receipt of a costumer order.

Balking - Waiting Lines

 It occurs when a costumer chooses not to enter the waiting line.

Waiting Lines

 also known as queing system.

 Used to estimate the number of potential costumers that can fit into the process of a
service system at any given time.

Handout 7

In-Sourcing - Other Supply Chain Strategies

 This is the opposite of outsourcing.

Joint Ventures - Other Supply Chain Strategies

 These are formal collaborations between two companies.

  The goal of this strategy is to reduce risk, enhance skills, minimize costs, and increase
profitability.

The Procurement Process – Last step

 APPROVE INVOICES FOR PAYMENT – This step involves the approval of invoice
for payment according to the terms and conditions of the purchase order (PO).

The Procurement Process – 3rd Step

 Identify and select suppliers – this step involves searching for potential suppleirs or
contractors from a variety of sources, including the Inetrnet, catalogs, salespeople, trade
magazines, and directories.

II.

1. In no more than three (3) sentences, give an example of a dependent demand

inventory.
- A classic example of dependent demand inventory is the components required for
manufacturing a product, such as the parts needed to assemble a car. The demand for
these components is directly linked to the demand for the final product; as the demand
for cars increases, so does the demand for the necessary parts to build them.
Therefore, the inventory levels of these components are dependent on the production
schedule and sales forecasts of the finished goods.

5. In no more than three (3) sentences, choose one (1) type of inventory and give a
particular example that demonstrates its concept.

- The concept of perishable inventory revolves around managing goods that have a
limited shelf life. For example, lettuce in a grocery store must be sold within a certain
timeframe before it spoils, making it crucial for the store to monitor inventory levels
closely and ensure timely sales to minimize waste and maximize profitability.