Part 6 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing....

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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

Copyright Copyright © © 2003 South-Western College Publishing.2003 South-Western College Publishing. All rights reserved.All rights reserved.

Social and Social and Ethical IssuesEthical IssuesSocial and Social and Ethical IssuesEthical Issues

2121

Small Business Management

12e

Copyright © by South-Western College Publishing. All rights reserved. 21–2

Ethics and Small BusinessEthics and Small BusinessEthics and Small BusinessEthics and Small Business

• Doing the Right Thing–Ethical issues—questions of right and wrong

• Kinds of Ethical Issues–Ethical issues in business operations

Income and expense reporting (income tax fraud)“Truth in advertising”—persuasion and deceptionBribing customers and rigging bidsDirect selling—pyramid schemes, bait-and-switch

sellingEffects of owners’ ethics on their employeesAccurately reporting financial information


Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)Ethics and Small Business (cont’d)

• Kinds of Ethical Issues (cont’d)–Ethical issues and employees

“To do an honest day’s work”Fraudulent workers’ compensation claimsTheft of company property and embezzlement of

fundsViolation of personal ethics to make a sale



• Internet ethics–Risks of buying and selling on the Internet–Maintenance of personal privacy

Monitoring employees’ e-mail and Internet access at work.

–Protection of intellectual propertyOriginal intellectual creations, including

inventions, literary creations, and works of art, that are protected by patents or copyrights.



• International Ethical Perspectives–Bribery versus customary local business practices–Ethical imperialism

The belief that the ethical standards of one’s own country can be applied universally.

–Ethical relativismThe belief that ethical standards are subject to

local interpretation.“When in Rome, do as the Romans do”


Difficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small FirmsDifficult Ethical Issues Facing Small Firms

Ethical Issue

Number of Responses

Examples of Responses

Compliance with governmental requirements and reporting to governmental agencies

17 “Having to deal with so-called anti-discrimination laws which in fact force me to discriminate”

“Employing people who may not be legal [citizens] to work”

Human resource decisions 14 Whether to lay off workers who [are] surplus to our needs and would have a problem finding work or to deeply cut executive pay and perks”

“Sexual harassment”

Environmental and social responsibilities

5 “Whether to pay to have chemicals disposed of or just throw them in a dumpster” “Environmental safety versus cost to prevent accidents”

Source: Justin Longenecker, Joseph A. McKinney, and Carlos W. Moore, “Ethical Attitudes, Issues, and Pressures in Small Business,” paper presented at the International Council for Small Business Conference, Sydney, Australia, June 1995.


Building an Ethical BusinessBuilding an Ethical BusinessBuilding an Ethical BusinessBuilding an Ethical Business

• Strong Underlying Values–Unarticulated ethical beliefs that provide a

foundation for ethical behavior in a firm.Are based on personal views of the universe and

mankind.Strongly held views can lead to tough choices.Ethics of the firm affects how outsiders view of

the firm and their decisions about the firm.


Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)Building an Ethical Business (cont’d)

• Ethical Leadership–Owner/leaders and their ethics have more direct

and pronounced effects in small firms.–Owner/leaders can insist that ethical principles be

followed by employees.



• A Supportive Culture–Building an ethical culture requires

Full commitment to ethical conduct by the firmStrong, ethical managerial leadership

–Code of ethicsOfficial standards of employee behavior set by

the firm.Foundation for ethical conduct by employeesClarifies the rules and gives guidance to

employees



• Better Business Bureau–Provides free buying guidelines and information

about companies to consumers.–Attempts to resolve questions or disputes

concerning purchases.–Bait advertising

An insincere offer to sell a product or service at a very low price, used to lure customers in so that they can be switched later to a more expensive product.


Social Responsibilities and Small BusinessSocial Responsibilities and Small BusinessSocial Responsibilities and Small BusinessSocial Responsibilities and Small Business

• Social Responsibility–The role of a small business as a good citizen in

its community in meeting its ethical obligations to customers, employees, and the general community.Regarded as the price of freedom to operate in a

free economic system.Frequently takes the form of personal

contributions, volunteerism and the contribution of services by the firm and its employees.


Social Responsibilities of Small FirmsSocial Responsibilities of Small FirmsSocial Responsibilities of Small FirmsSocial Responsibilities of Small Firms

SocialSocialResponsibilitiesResponsibilities

ConsumerismConsumerism

Support of Support of EducationEducation

Compliance with Compliance with Government Government RegulationsRegulations

Response to Response to Community NeedsCommunity Needs

Contributions to Contributions to Community Community

OrganizationsOrganizations

Obligations to Obligations to StakeholdersStakeholders

EnvironmentalEnvironmentalProtectionProtection


Challenges of EnvironmentalismChallenges of EnvironmentalismChallenges of EnvironmentalismChallenges of Environmentalism

• Environmental Issues–Environmentalism

The effort to protect and preserve the environment

• Positive impact of environmentalism–Builds customer loyalty–Improves firm’s image in the community–Provides business opportunities

• Negative impact of environmentalism–Entails cost of modifying facilities–Adds government regulation–Increases likelihood of lawsuits


Challenges of ConsumerismChallenges of ConsumerismChallenges of ConsumerismChallenges of Consumerism

• Consumerism–A movement that stresses the needs of

consumers and the importance of serving them honestly and well.

• Consumer Issues and Regulatory Legislation–No longer “Buyer Beware”

Product features: safety, reliability, durability

Product marketing: Truth-in-advertising, written warranties

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Managing Managing Human Human ResourcesResources

Managing Managing Human Human ResourcesResources


12e


Recruiting PersonnelRecruiting PersonnelRecruiting PersonnelRecruiting Personnel

• The Need for Quality Employees–Employee performance affects the capability of

the firm to service customer needs.–Employee performance affects profitability.–Payroll costs affect firm’s bottom line.–Quality of employees determines the long-term

competitive potential of the firm.


The Lure of Small FirmsThe Lure of Small FirmsThe Lure of Small FirmsThe Lure of Small Firms

• Advantages of Employment in Small Firms–Quicker movement to decision-making levels of

management–Greater managerial freedom–More opportunities for broad-based managerial

experience–Flexibility in work scheduling

and job sharing


Sources of EmployeesSources of EmployeesSources of EmployeesSources of Employees

Sources of EmployeesSources of EmployeesSources of EmployeesSources of Employees

Walk-insWalk-insWalk-insWalk-ins

SchoolsSchoolsSchoolsSchools

Public EmploymentPublic Employment Agencies Agencies

Public EmploymentPublic Employment Agencies Agencies

Executive SearchExecutive SearchFirmsFirms

Executive SearchExecutive SearchFirmsFirms

Employee ReferralsEmployee ReferralsEmployee ReferralsEmployee Referrals

Private EmploymentPrivate EmploymentAgenciesAgencies

Private EmploymentPrivate EmploymentAgenciesAgencies

InternetInternetRecruitingRecruiting

InternetInternetRecruitingRecruiting

Help-WantedHelp-WantedAdvertisingAdvertising

Help-WantedHelp-WantedAdvertisingAdvertising

Temporary HelpTemporary HelpAgenciesAgencies

Temporary HelpTemporary HelpAgenciesAgencies


Diversity in the WorkforceDiversity in the WorkforceDiversity in the WorkforceDiversity in the Workforce

• Workforce Diversity–Differences among employees in terms of such

dimensions as gender, age, and race.–Diversity is increasing with higher proportions of

women, older workers, and racial minorities entering the workforce.


Job DescriptionJob DescriptionJob DescriptionJob Description

• Job Description–A written summary of the essential duties required

by a specific jobAids in personnel recruitment.Helps focus employees on their work.Provides direction in training.Serves as the basis for performance review.

• Job Specification–A list of the skills and abilities needed by the job

holder to successfully perform a specific jobAids in selecting the most qualified job applicant.


Job Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food StoreJob Description for a Stock Clerk in Retail Food Store

Title: Stock ClerkPrimary Function: To stock shelves food products and other itemsSupervision Received: Works under direct supervision of store managerSupervision Exercised: None

Duties:1. Receive and store products in storage area.2. Take products from storage, open outer wrapping, and place on store

shelves.3. Provide information and/or directions to customers seeking particular products or having other questions.4. Monitor quantity of products on shelves and add products when supplies

are low.5. Perform housekeeping duties when special need arises—for example,

when a container is broken or products fall on the floor.6. Assist cashiers in bagging products as needed during rush periods.7. Assist in other areas or perform special assignments as directed by the

store manager.

Title: Stock ClerkPrimary Function: To stock shelves food products and other itemsSupervision Received: Works under direct supervision of store managerSupervision Exercised: None

Duties:1. Receive and store products in storage area.2. Take products from storage, open outer wrapping, and place on store

shelves.3. Provide information and/or directions to customers seeking particular products or having other questions.4. Monitor quantity of products on shelves and add products when supplies

are low.5. Perform housekeeping duties when special need arises—for example,

when a container is broken or products fall on the floor.6. Assist cashiers in bagging products as needed during rush periods.7. Assist in other areas or perform special assignments as directed by the

store manager.

Figure 19.1


Evaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting EmployeesEvaluating Prospects and Selecting Employees

Steps in Recruiting EmployeesSteps in Recruiting Employees

Application FormsApplication Forms

Applicant interviewApplicant interview

Reference checkingReference checking

Applicant testingApplicant testing

Physical ExaminationPhysical Examination


Training and Developing Employees Training and Developing Employees Training and Developing Employees Training and Developing Employees

• Purposes of Training and Development–Prepare recruit to perform the duties of the job.–Improve the performance of current employees.–Prepare employees for career advancement.–Improve morale of current employees.–Serve as an inducement to potential applicants.

• Factors in Establishing a Training Program–Determining the need for training–Creating a plan for training–Setting a timetable for training–Providing employee counseling


Types of Training and DevelopmentTypes of Training and DevelopmentTypes of Training and DevelopmentTypes of Training and Development

Development of Development of Managers and Managers and ProfessionalsProfessionals

Orientation ofOrientation ofNew PersonnelNew Personnel

Training to Training to Improve QualityImprove Quality

Training of Training of Nonmanagerial Nonmanagerial

EmployeesEmployees

TrainingTrainingandand

DevelopmentDevelopment


PREPARE EMPLOYEES

• Put employees at ease.• Place them in appropriate jobs. • Find out what they know.• Get them interested in learning.

PREPARE EMPLOYEES

• Put employees at ease.• Place them in appropriate jobs. • Find out what they know.• Get them interested in learning.

PRESENT THE OPERATIONS

• Tell, show, and illustrate the task.• Stress key points.• Instruct clearly and completely.

PRESENT THE OPERATIONS

• Tell, show, and illustrate the task.• Stress key points.• Instruct clearly and completely.

TRY OUT PERFORMANCE

• Have employees perform the task.• Have them tell, show, and explain.• Ask employees questions and correct any errors.

TRY OUT PERFORMANCE

• Have employees perform the task.• Have them tell, show, and explain.• Ask employees questions and correct any errors.

FOLLOW UP

• Check on employees frequently.• Tell them how to obtain help.• Encourage questions.

FOLLOW UP

• Check on employees frequently.• Tell them how to obtain help.• Encourage questions.

Steps in Job Steps in Job InstructionInstruction

Steps in Job Steps in Job InstructionInstruction

Figure 19.2


Compensation and Incentives for Small Compensation and Incentives for Small Business EmployeesBusiness Employees

Compensation and Incentives for Small Compensation and Incentives for Small Business EmployeesBusiness Employees

• Financial Incentives–Keys to developing an effective bonus plan:

Set attainable goals.Set meaningful goals.Bring workers in

(employee participation).Keep targets moving.Aim carefully.


Compensation and Incentives for Small Compensation and Incentives for Small Business Employees (cont’d)Business Employees (cont’d)

Compensation and Incentives for Small Compensation and Incentives for Small Business Employees (cont’d)Business Employees (cont’d)

• Fringe Benefits–Supplements to compensation designed to be

attractive and beneficial to employees.Benefits are a substantial portion of payroll costs.Small firms tend to provide fewer benefits.Small firms are increasingly outsourcing the

administration of their benefits programs.


Employee Stock Ownership PlansEmployee Stock Ownership PlansEmployee Stock Ownership PlansEmployee Stock Ownership Plans

• Employee Stock Ownership Plans (ESOPs)–Plans through which a firm is sold either in part or

in total to its employees.Employees’ performance is motivated by their

sharing of ownership in the firm.Owners can cash out and withdraw without

selling to outsiders.ESOPs offer tax advantages to owners and

employees.


Special Issues in HRMSpecial Issues in HRMSpecial Issues in HRMSpecial Issues in HRM

• Employee Leasing–The “renting” of personnel from an organization

that handles paperwork and administers benefits for those employeesLeasing allows small firms to provide employee

benefits.Leasing makes small firms subject to additional

government regulations.

–Professional Employment OrganizationA personnel-leasing company that places

employees on its own payroll and then “rents” them to employers on a permanent basis.


What Employee-Leasing CompaniesWhat Employee-Leasing CompaniesOffer to Small FirmsOffer to Small Firms

What Employee-Leasing CompaniesWhat Employee-Leasing CompaniesOffer to Small FirmsOffer to Small Firms

• Better health insurance• Preparation of paychecks• Payment of payroll taxes• Analysis of government regulations• Preparation of government reports• Monitoring of vacation and sick days


Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)Special Issues in HRM (cont’d)

• Legal Protection of Employees–Employment (Equal Pay for Men and Women) Act

December 1, 1975Legislation that prohibits discrimination of

compensation based on sex

–THE LABOUR RELATIONS AND INDUSTRIAL DISPUTES ACTLegislation that clarifies how industrial disputes should be resolved and required relations between employee and employer



• Legal Protection of Employees (cont’d)–Sexual harassment policy guidelines

Establish clear and meaningful policies regarding sexual harassment in the workplace.

Meet with employees and supervisory personnel to discuss the policies.

Investigate any and all complaints of sexual harassment fairly and thoroughly.

Take timely and appropriate action against all violators.



• Legal Protection of Employees (cont’d)–Factories Act (to be replaced by Occupational

Safety and Health Act)Legislation that regulates the safety of

workplaces and work practices.



• Legal Protection of Employees (cont’d)–Maternity Leave Act (1979)

Legislation requiring firms to provide up to twelve weeks paid maternity leave

–Holiday with Pay Act Legislation requiring firms to provide employees with

up to 3 weeks of paid vacation leaveRequires firms to pay employees during periods of

illness up to 2 normal working weeks



• Formalizing of Employer-Employee Relationships–Employee handbook contents

Expression of company philosophyRecruitmentSelectionTrainingVacationsGrievancesDisciplinePerformance reviews



• The Need for a Human Resource Manager–Conditions favoring the appointment of an HR

manager:A substantial number of employees (100+)Unionized employeesA high labor turnover rateA strong need to recruit skilled and professional

employeesSupervisors or operative employees in need of

trainingLow employee moraleIntense job market competition for personnel

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Quality Management Quality Management and the Operations and the Operations ProcessProcess

Quality Management Quality Management and the Operations and the Operations ProcessProcess

2020


12e


Looking AheadLooking AheadLooking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Explain the key elements of total quality management (TQM) programs.

2. Discuss the nature of the operations process for both products and services.

3. Explain how reengineering and other methods of work improvement can increase productivity and make a firm more competitive.

4. Discuss the importance of purchasing and the nature of key purchasing policies.

5. Describe ways to control inventory and minimize inventory costs.


Quality Goals of Operations ManagementQuality Goals of Operations ManagementQuality Goals of Operations ManagementQuality Goals of Operations Management

• Quality–The features of a product or service that enable it

to satisfy customers’ needs.–A perception of the customer as to the suitability

of the product or service of a firm.

• Total Quality Management (TQM)–An aggressive, all-encompassing management

approach to providing high-quality products and services.

Copyright © by South-Western College Publishing. All rights reserved. 20–40Fig. 20.1

Successful Quality Management

SupportiveOrganizational

Culture

AppropriateTools and

Techniques

Focus onCustomers

Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management

Essential Elements ofEssential Elements ofSuccessful Quality ManagementSuccessful Quality Management


Customer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality ManagementCustomer Focus on Quality Management

• Customer Expectations–Quality is the extent to which a product or service

satisfies customer’s needs and expectations.Product qualityService qualityProduct and service quality combinations

–“The customer is the focal point of quality efforts.”

• Customer Feedback–Customers are the eyes and ears of the business

for quality matters.


Organizational Culture and TQMOrganizational Culture and TQMOrganizational Culture and TQMOrganizational Culture and TQM

• Organizational Culture–The behavior, beliefs, and values that characterize

a particular firm.

• Continuous Quality Improvement–A constant and dedicated effort to improve quality.

• Benchmarking–The process of studying the products, services,

and practices of other firms and using the insights gained to improve quality internally.


Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM

• Employee Participation–Employee performance is a critical quality

variable.–Quality circle

A group of employees who meet regularly to discuss quality-related problems.


Tools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQMTools and Techniques of TQM

• The Inspection Process–The examination of a product to determine

whether it meets quality standards.–Inspection standard

A specification of a desired quality level and allowable tolerances.

–Attribute inspectionThe determination of product acceptability based

on whether it will or will not work.

–Variable inspectionThe determination of product acceptability based

on a variable such as weight or length.


Statistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality ControlStatistical Methods of Quality Control

• Acceptance Sampling–The use of a random, representative portion to

determine the acceptability of an entire lot.

• Statistical Process Control–The use of statistical methods

to assess quality during the operations process.

• Control Chart–A graphic illustration

of the limits used in statistical process control.


International Certification forInternational Certification forQuality ManagementQuality Management

International Certification forInternational Certification forQuality ManagementQuality Management

• ISO 9000–The standards governing international certification

of a firm’s quality management procedures.


The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process

• The Nature of the Operations Process–Operations management

The planning and control of the operations process

Involves acquiring inputs and overseeing their transformation in products and services

Copyright © by South-Western College Publishing. All rights reserved. 20–48Fig. 20.2

Inputs

Operations

Outputs

• Designing • Processing • Treating • Storing • Advising• Fabricating • Refining • Assembling • Shipping • Instructing

ClothingBaked goodsPaint

Dry cleaningAppliance repairAutomobile painting

Products Services

Money Labor Equipment Information EnergyRaw

Materials

Examples: Examples:

The Operations ProcessThe Operations ProcessThe Operations ProcessThe Operations Process


The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)

• Manufacturing Versus Service Operations–Productivity is more easily measured in

manufacturing than service operations–Quality is more difficult to establish in service

than manufacturing operations.–Customers are more involved in service than

manufacturing operations.–Manufacturing can produce goods for inventory;

service operations cannot store or bank services.


Types of ManufacturingTypes of ManufacturingTypes of ManufacturingTypes of Manufacturing

• Job Shops–Operations characterized by short production runs

of small quantities of unique items.

• Repetitive Manufacturing–Operations in which long production runs are

used to produce a large quantity of a standardized product.

• Batch Manufacturing–An intermediate form involving more variety in

volume and products than job shops and less than repetitive manufacturing.


The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)The Operations Process (cont’d)

• Operations Planning and Scheduling–Attempting to achieve the orderly, sequential flow

of products to market.Production operationsService operations

• Plant Maintenance–The role of maintenance

To correct equipment malfunctions and prevent breakdowns

–Types of maintenancePreventive maintenanceCorrective maintenance


Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity

Competitive Strength ThroughCompetitive Strength ThroughImproved ProductivityImproved Productivity

• The Importance of Improving Productivity–Productivity is the efficiency with which inputs are transformed into outputs.–Productivity is more difficult to increase in service industries than in

manufacturing sectors.

Inputs

OutputstyProductivi

nInformatio MaterialsRaw Money Energy Labor

services and/or ProductstyProductivi


Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)

• Reengineering for Improved Productivity–Reengineering

A fundamental restructuring to improve the operations process.

Asking “Why?” is important in the reengineering process.


Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)Competitive Strength ThroughCompetitive Strength ThroughImproved Productivity (cont’d)Improved Productivity (cont’d)

• Operations Analysis–Laws of motion economy

Arranging work in the most cost-effective and efficient manner possible.

• Methods of Work Measurement–Motion Study

An analysis of all the motions a worker makes to complete a given job.

–Time StudyA determination of the average time, it takes to

complete


Purchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and PracticesPurchasing Policies and Practices

• Purchasing–The process of obtaining materials, equipment,

and services from outside.

• The Importance of Purchasing–The process of acquiring quality raw material

inputs affects:The timely and consistent production of quality

products.Retailer sales of finished products to customers.The costs of products, their profitability and their

selling prices.



• Purchasing Practices and Profitability–Making or buying

A firm’s choice between producing and purchasing component parts for its products.

–Reasons for making:Increased utilization of plant capacityAssurance of supply of critical componentsMaintaining secrecy in designs and processesSaving on transportation costs and supplier

profitsCloser coordination and control of overall processHigher quality components for inputs



• Purchasing Practices and Profitability–Outsourcing

Purchasing products or services that are outside the firm’s area of competitive advantage.

–Reasons for BuyingSupplier’s part/service is cheaper and/or higher

qualityInvestment savings on space, personnel,

equipmentGreater flexibility in matching supply and demandIncreased focus on production of core

product/serviceNo risk of equipment obsolescence



• Purchasing Practices and Profitability–Buying on the Internet

Small firms save on inputs by using the Internet to seek out the lowest cost suppliers.



• Diversifying sources of supply–Reasons for having a sole supplier

Outstanding supplier qualityQuantity discounts for volume purchasesSingle orders too small to divide among suppliersQuality of supplier-customer relationship

–Reasons for having multiple suppliersChoice of best quality, price, and serviceSupplier competes for businessInsurance against input interruptions



• Relationships with suppliers–Selecting suppliers

Price and qualityLocation and delivery reliabilityServices offered—credit, product support,

promotion

• Building good relationships with suppliers–Purchasing practices

Pay bills promptlyBe courteous to sales representativesAvoid abrupt cancellations of ordersMaintain a professional relationship



• Developing Strategic Alliances–Strategic alliance is an organizational relationship

that links two independent business entities in a common endeavor. Involves close coordination of buyers and sellers to:Reduce product introduction lead timeImprove product qualityEngage in joint problem solvingMake joint adjustments to market conditionsInvolve the supplier early in product development


EnsuringContinuousOperations

MaximizingSales

ProtectingAssets

MinimizingInventory

Investment

Fig. 20.3

Inventory Management and OperationsInventory Management and OperationsInventory Management and OperationsInventory Management and Operations

• Objectives of Inventory Management



• Inventory Cost Control–Economic order quantity (EOQ)

The quantity to purchase in order to minimize total inventory costs.

Totalinventory

costs

Totalordering

costs

Totalcarrying

costs= +


EOQ Total Costs

Ordering Costs

Carrying Costs

Order Quantity (Units)

Cost ($)

Fig. 20.4

Graphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order QuantityGraphic Portrayal of the Economic Order Quantity



• ABC Inventory Analysis–A system of classifying items in inventory by

relative value–Category A (close/continuous control)

High-value or critical production component items

–Category B (moderate control)Less costly, secondary importance items

–Category C (periodic control)Low-cost and noncritical items



• Just-In-Time Inventory (JIT) System, also Kanban–A method of reducing inventory level to an

absolute minimum.New items arrive at the same time that the last

inventory item is placed in service

–JIT promotes:Closer coordination with suppliersConsistent quality productionLower safety stock levels



• Inventory Record-Keeping Systems–Physical inventory system

A method that provides for periodic counting of items in inventory

–Cycle countingA system of counting different segments of the

physical inventory at different times during the year.

–Perpetual inventoryA method for keeping a running record of

inventory.

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