Need a Rewrite on homework 4 logistics

Need a Rewrite on homework 4 logistics 

Homework 4 logistics

Introduction

Each chapter of your textbook has a list of study questions. Check your understanding of the concepts by completing the selected study questions.

Requirements

· Each question response should be 50-100 words.

Due Date

· Submit by Sunday, 11:59 p.m., CST.

Homework Assignment Questions

· Chapter 9, Page 354,  Questions # 1, 2, 4, 6, 11

Explain why inventory costs and inventory levels have declined relative to GDP over the last 20 years. Is this beneficial to the economy? Why or why not?

Costs have declined as compared to GDP due to following reasons-

· With less resources and working capital economy is generating more revenue

· Due to constant advancement in technology, IT maintains optimal level of inventories and increased productivity

· More sales and huge market share

A fall in inventory cost with constant good customer service is fruitful for both buyers and sellers, this increased transportation cost.

2. What are the major components of inventory carrying cost? How would you measure capital cost for making inventory policy decisions?

The major components of the inventory carrying cost are as follows:

· Capital Cost: The capital cost is the cost that a business develops carrying an inventory. It is the biggest part of the absolute costs of carrying an inventory. An organization will communicate the capital cost as a level of the dollar estimation of the complete inventory it is holding.

· Storage Space Cost: The storage space cost is a mix of the warehouse lease or home loan, lighting, warming, cooling, in addition to the taking care of costs of moving the materials all through the warehouse.

· Inventory Service Cost: The cost of carrying inventory will incorporate inventory service costs. These costs incorporate protection paid on the inventory and charges to the nearby government.

· Inventory Risk Cost: Carrying inventory accompanies a specific level of risk. This risk is a segment of the cost of carrying an inventory.

Capital can be estimated by using weighted normal costs. Weighted normal costs of capital incorporate the normal per cent of debt incurred on different wellsprings of subsidizing.

Explain the differences between inventory carrying costs and ordering cost.

Difference between inventory carrying cost and ordering cost.

Carrying Cost	Ordering Cost
The cost which is associated with storing an item in inventory is called carrying cost.	Ordering cost is the cost associated with getting an item of inventory. It also includes the cost of placing an order.
Carrying cost is also known as holding cost or shortage cost.	It is also called setup cost, or procurement cost.
Carrying costs include cost of storage facilities, property insurance, loss of value through physical deterioration, cost of obsolescence.	Ordering costs include purchasing cost, transportation cost, and receiving cost.
Any overhead expenses such as a paying electricity bill, or renting a building for storing the inventory item is a part of carrying cost.	Transportation cost of bringing inventory to the warehouse building is a part of ordering cost.

6. How does inventory carrying cost for inventory in transit differ from the cost of inventory at rest?

Answer: Another inventory carrying cost that many organizations ignore is that of carrying inventory in transit. This cost might be less apparent than those discussed earlier. However, under certain circumstances, it might represent a very significant expense. Remember, someone will own the inventory while it is in transit and will incur the resulting carrying costs. For example, an organization selling its products “free-onboard” (FOB) destination is responsible for transporting the products to its customers, since title does not pass until the products reach the customer’s facility. Financially, the product remains under the ownership of the shipper until it is unloaded from the transportation vehicle at the customer’s location. In-transit inventory carrying cost becomes especially important on global moves since both distance and time from the shipping location both increase.

Since this “moving” inventory is shipper-owned until delivered to the customer, the shipper should consider its delivery time part of its inventory carrying cost. The faster delivery occurs, the sooner the transaction is completed and the faster the shipper receives payment for the shipment. This also means the shipper owns the product in transit for a shorter period of time. Since faster transportation typically means higher transportation cost, the shipper might want to analyze the tradeoff between transportation cost and the cost of carrying inventory in transit.

11. What are the benefits of classifying inventory using ABC analysis? What are the different types of criteria that could be used to classify inventory?

Answer: ABC analysis assigns inventory items to one of three groups according to the relative impact or value of the items that make up the group. A items are considered to be the most important, with B items being of lesser importance, and C items being the least important. Important to remember here is that the criteria used to evaluate an item will determine the group to which it is assigned. Using revenue per item as the criterion might assign Item 1 to the A group, while using profit per item as the criterion might assign Item 1 to the C group. Determining which criteria to use for inventory classification will depend on the goals the organization is trying to achieve. Also remember that an organization might determine that it needs more or less than three groupings.

ABC classification is relatively simple. The first step is to select some criterion, such as revenue, for developing the ranking. The next step is to rank items in descending order of importance according to this criterion and to calculate actual and cumulative total revenue percentages for each item. This calculation will allow the items to be grouped into the ABC categories.

The last step assigns the items into ABC groups. This step is the most difficult and no simple technique is available. While the analysis is supported by data inputs, the ultimate decisions will require subjective judgment on the part of the decision maker. As the item rankings are examined, significant natural “breaks” sometimes appear. This is not always the case, and the decision maker will have to consider other variables such as the item’s importance and the cost of managing that item.