Other Topics in Working Capital Management

1

• Chapter 23 - II
• Other Topics in Working Capital Management

2
INVENTORY CONTROL SYSTEMS

• Purchasing manager would like to take advantage
  of _____ discounts
• Production manager needs enough raw materials
  and goods-in-process inventories to avoid
  production _____
• Marketing manager wishes to minimize running
  out of _____ inventories

3

• A computerized inventory control system _____
  recognizes when a reorder-point level of
  inventory has been reached via _____ terminals,
  and places an order for more inventory (_____
  intelligence).

4
Supply Chain Management

• On Saturday, a customer in Atlanta buys a shirt
  (white Stafford, size 17 neck, 34/35 sleeve). On
  Monday morning, a computer technician in Hong
  Kong downloads a record of the sale. By
  Wednesday, a factory worker in Taiwan packs an
  identical replacement shirt to be shipped to the
  Atlanta store.

5

• With a JIT inventory system, inventory shipments
  arrive _____ to be placed into the production
  process.
• In the past, inefficiencies in forecasting and
  production flow design were cured by carrying
  greater _____ of inventory.
• JIT systems aim for _____ inventory, requiring
  suppliers to be reliable and provide a
  high-quality product

6

• Employees must be _____-trained to perform a
  variety of tasks.
• The best candidates for JIT systems are _____
  firms with _____ market share, and a _____
  product demand.
• An alternative to JIT is to establish a
  competitive advantage by offering a _____ of
  merchandise at lower prices.

7

• Wal-Mart designed its supply chain management
  system in alliance with its _____.
• Companies now employ _____ that are used to
  identify and plan enterprise-wide resources
  needed to take, make, ship, and account for
  customer orders.

8
Outsourcing

• Practice of _____ components, rather than
  constructing them in-house.
• It may be _____, and may _____ production.
• May also be done to escape paying _____ wages
  in-house.
• It requires, however, great coordination with
  _____ so items arrive on time.

9

• Does Dell use out-sourcing? (chips, CD/DVD
  drives, etc.)
• What to these have to do with the concept of zero
  working capital? It reduces _____ carried.

10
ACCOUNTING FOR INVENTORY

• What are the four methods of determining COGS?
• Specific identification used with _____ items
  (e.g., cars)
• FIFO base on _____ cost
• LIFO base on _____ cost
• Weighted average falls in between FIFO and LIFO

11

• Consider the following example
• Item 1 2 3 4 5 Total
• Cost() 14 14 16 18 18 80
• The 1st 2nd and 5th items were sold.
• Selling price 30 each

12

• Find sales, COGS, profit, and ending inventory
  for each method.
• End
• Sales COGS Profit Inv
• Spec ID 90 46 44 34
• FIFO ___ ___ ___ ___
• LIFO ___ ___ ___ ___
• WtdAvg ___ ___ ___ ___

13

• With a rising-cost trend, which method produces
  the highest
• - cost of goods sold? (_____)
• - reported profit? (_____)
• - cash flow? (____due to tax effect)
• - value for ending inventory? (_____)

14
In-Class Exercise

• Re-work the same problem assuming that the 1st
  and 4th items are sold.