Key Words

Economic Order Quantity (EOQ) – This is a measure used by the

management to get an optimal order size just to minimize the sum of
ordering, carrying, and stockout costs. It is also used in the inventory
management system.
Imprest Fund – A cash account with two characteristics: (1) It is set at a
fixed amount, such as P10,000; and (2) For every disbursement, vouchers
are required. The sum of cash and the vouchers used must be equal to
the preset fund balance. It is part of the cash management system.
Just-in-time (JIT) Inventory System – It is a system that minimizes or
virtually eliminates inventories by purchasing and producing goods in
response to actual order, rather than forecasted sales.
Key Words
Kickbacks – Gifts given by suppliers to purchasing agents to influence
their choice of suppliers.
Materials Requirements Planning (MRP) – is an approach to an inventory
management system that reduces required inventory levels. It also
improved the accuracy of forecasting techniques to better schedule
purchases to satisfy production needs.
Reorder Point – It specifies the level of reordering or replenishing the
stock.
Vendor-Managed Inventory (VMI) – It is a practice of manufacturers and
distributors in a retail customer's inventory using EDI. Typically, the
supplier accesses its customer's point-of-sale system to monitor inventory
and automatically replenish products when they fall to agreed-upon
levels.
Key Decisions in the Expenditure Cycle
Material requirements from the revenue cycle, production cycle,
inventory control, and various departments will flow to the expenditure
cycle.

If the goods and materials arrive, the expenditure cycle will provide
information about their receipt to the parties that have requested them.

After these, information is provided to the general ledger and reporting

function for internal and external financial reporting.
Key Management Decisions

What is the optimal level of inventory?

Which suppliers provide the best quality of service

at the best prices

How the organization consolidates purchases

across units to obtain the optimal price?
Key Management Decisions
How can information technology (IT) be used to
improve both the efficiency and accuracy of the
inbound logistics functions?

How an organization maintains sufficient cash to

take advantage of any discount suppliers offer?

How can payments to vendors be managed to

maximize cash flows?
 Weaknesses in inventory control can
create significant problems with this
process
Optimum
Level Inaccurate records cause shortages

of To minimize the risk, the inventory

Inventory control method must be used:
• Economic Order Quantity (EOQ)
• Just-in-Time Inventory (JIT)
• Materials Requirements Planning (MRP)
 Choosing The Suppliers
There are several factors that should be considered when selecting
suppliers
Dependability in
Price Quality of Materials
Making Deliveries

The identity of the supplier selected for a product choice should

become part of the product inventory master file. An alternative list
of the potential supplier must also be maintained. For seldom
ordered goods, the selection process may be repeated every time
 Choosing The Suppliers
It’s essential to track and periodically evaluate supplier
performance, including data on purchase prices, rework and scrap
costs, and supplier delivery performance

The purchasing function must be evaluated and rewarded based on

how well it minimizes total costs, not just the costs of purchasing
the goods
 IT Improvement
The major cost drive is the number of purchase orders processed.

Time and cost can be cut by

Ordering of Goods Receiving of Goods

• Using Electronic Data Interchange • Bar Coding
(EDI) to transmit purchase orders • RFID
• Using vendor-managed inventory • EDI and satellite technology
systems
 As a finance manager, you
need to manage your cash to
support its sufficiency and to
Maintaining, optimize your cash potential.

Sufficiency, You may use an imprest fund

and system to maintain the cash
balance in petty cash fund.
Maximizing
Cash
You may also avail of the
discount period.