bab 8 - 9 logistical management.copy1

7/30/2019 Bab 8 - 9 Logistical Management.copy1

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Handouts of

Logistical ManagementCourse

for A & B Classes


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Logistical Management

Part

CH.8 : INVENTORY STRATEGY &

CH.9 : INVENTORY MANAGEMENT


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Chapter. 8 :

INVENTORY STRATEGY

High risk and high impact

Sales lost and customer satisfaction declineOver stock may increase cost and reduce

profitability

Inventory type and characteristics

Basic inventory decision rules

Uncertainty


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Chapter. 8 :

INVENTORY STRATEGY


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Relation between formulating inventory andmanufacturing / marketing .Inventory as a % (percentages) of assetsOpportunity of increasing inventory productivity

vs. integrated supply chains ability to useinformation exchange and management focus toreduce uncertainty

Chapter. 8 :

INVENTORY STRATEGY


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a. Inventory type and characteristics

b. Inventory functionalityc. Inventory related definitionsd. Cost of carrying inventory


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A. Inventory type and characteristicsInventory risk due to capital investment and

potential for obsolescenceI. Investment of inventory

II. Possibility of risk

Nature of risk is vary depend on an enterprises position inthe distribution channel. :a. Manufacturing long term dimension

b. Wholesalenarrow but deeper and longer duration

c. Retailer wide but not deep.


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Inventory functionality

1) Geographical Specialization - resources vs. distance need

individual operating unit2) Decoupling - provide maximum operating efficiency, the process

permit each product to be manufactured and distribute in economical

lots size.

3) Balancing supply and demand - is concern with elapsed

time between consumption and manufacturing, its reconcile supplyavailability with demand

4) Buffer uncertainty- the safety stock or buffer stock functionconcern short range variation in either demand or replenishment. Its

protect two type uncertainty : forecast and delay


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C. Inventory related definitionsInventory Policy - guide line what to purchase and manufacture, whenand what quantity

Service Levelis target specified by management.it defined theperformance objectives

Average Inventory - consist of material, components, W-I-P, and finishedgoods typically stocked in logistical facilities

Cycle inventoryis the portion of average inventory that result from

replenishment processSafety stock inventory - the second part of average inventoryheld to

protect against uncertainty on each facility

Transit inventorystock in moving or awaiting for transportation


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Example of average inventory over

performance cycle

200

100

0 20 40 60

days

Averageinventory

Orderplacement

Orderarrival

inventor

y


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:Assume the following condition :i. Replenishment cycle20 days

ii. Sales rate during replenishment10 unitsiii. Ordering upon deliveryiv. Replenishment order quantity200 units

Figure 8.2 is called , rate sales is 10 units per day

and take 20 days to complete inventory replenishment,its mean that order 200 units every 20 days.Formulation :Reorder point is specified as 200units on hand whatever happened

Average inventory100 units, since stock on hand is 100 units.

Assume that work days is 240 days a year, so 12 time ofpurchase is needed during one year.Sales 10 units per day , so became 2400 per yearThus became 2400 divided by 100 unit =


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What happen if order more frequently than onceevery 20 days?

Order 100 units every 10 days? Or 600 units every 60 days?Assuming that inventory cycle is constant 20 days.The policy of ordering 600 units every 60 days would resultthat average inventory became 300 units and turn overbecame 2400units/300units = 8

If the order 100 units per 10 days means that two orderbe outstanding. Thus reorder point remain 200 units

Average inventory became 50 units


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600

300

020 60 100

Days

Averageinventory

Orderarrival

inventory 400

200

40 80 120


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100

50

0 20 40 60

Orderplacement

Orderarrival

inventory

Averageinventory


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Inventory Carrying cost components :


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Basic reorder formula :

Where R = Reorder point in unitsD = Average daily demandT = Average performance cycle length

e.g Demand = 10 units per dayPerformance cycle = 20 days

R = 10 units /day X 20 days = 200units

With buffer stock or Safety Stock (SS)


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Remark :1) Co = cost per order2) Ci = annual inventory carrying cost3) D = annual sales volume, units

4) U = cost per unit


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Example using EOQ Formula

Annual demand volume = 2400 units Unit value at cost = $ 5.00 Inventory carrying cost percentage = 20 % annually

Ordering cost = $ 19.00 per order

By substituting from above , we have :

2 X 19 X 2400EOQ = ----------------------0.20 X 5.00


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EOQ extension :

EOQ formulation is straight forward, but there are some other factormust be considered in actual application : Volume transportation rates Quantity discountOther EOQ adjustment : (I) production lots size

(ii) Multiple item purchase(iii) Limited capital(iv) Private trucking

Discrete Lot SizingLot-for lot sizing

Period order quantity ( POQ) EOQ = 300 unitsForecast per year = 2400 unitsOrder per year = 2400/300 = 8 timesOrder interval = 12/8 = 1.5 months


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Forecast vs. actual

Frequency demand

Normal distributionStandard deviation

Inventory policy can not assume consistent delivery

Table 8.11

Table 8.12

MRP Formulae


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-------------------------------------------------------------------------------------------------------Forecast cycle 1 Stock out cycle Over stock cycle 3------------------------------ ------------------------------ ------------------------------Day Demand Accum. Day Demand Accum Day Demand Acumm

------------------------------------------------------------------------------------------------------1 9 9 11 0 0 21 5 52 2 11 12 6 6 22 5 103 1 12 13 5 11 23 4 144 3 15 14 7 18 24 3 175 7 22 15 10 28 25 4 21

6 5 27 16 7 35 26 1 227 4 31 17 6 41 27 2 248 8 39 18 9 50 28 8 329 6 45 19 so 50 29 3 3510 5 50 20 so 50 30 4 39--------------------------------------------------------------------------------------------------------


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Table 8-9 Frequency of Demand

----------------------------------------------------------------------------------------------------Demand/day Frequency (days) Demand Frequency (days)--------------------------------------------- ----------------------------------------------

Stockout 2 Five units 5Zero 1 Six units 3One unit 2 Seven units 3Two units 2 Eight units 2Three units 3 Nine Units 2

Four Units 4 Te units 1


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Historical analysis

ofdemand history


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Normal Distribution


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Calculation of standard deviationof daily demand

-------------------------------------------------------------------------------------Units Frequency Deviation Deviation

from Mean Squared(FJ) (Di) (Di) FiDi

------------------------------------------------------------------------------------

0 1 -5 25 251 2 -4 16 322 2 -3 9 183 3 -2 4 124 4 -1 1 45 5 0 0 0

6 3 1 1 37 3 2 4 128 2 3 9 189 2 4 16 3210 1 5 25 25------------------------------------------------------------------------------------


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Chapter .9 :INVENTORY MANAGEMENT

a) Inventory Control

b) Reactive Method

c) Planning Method

d) Adaptive Logic

a) Strategy Development Process

b) Method of improvement Inventory Management


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Chapter .9 :

INVENTORY MANAGEMENTChapter 8 focused on inventory decision for single item at a singlelocation, while chapter 9 discussed inventory management for a range ofSKUs (Stock Keeping Units) and at multiple location.

Inventory management is the integrated process that operationalizes thefirms and the value chains inventory policy.

Reactive approach or pull inventory approach, uses customer demandto pull product through the distribution channel

Planning approach, - proactively schedule product movement,according to the forecast.

Combination of two approach abov,respon to the product and marketenvironment


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Inventory ControlInventory control is a mechanical procedure for implementing aninventory policy. Accountability and tracking should be done eithermanually or computerized. The primary differential are : speed,accuracyand cost.Inventory control procedure can be characterized as perpetual

or periodic.A perpetual inventory control process reviews

inventory status daily to determine replenishment needs, implementedthrough and .

Order quantity determine using EOQ Formulation, EOQ extension oranother approach


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Example :Average daily demand = 20 units

Performance cycle = 10 daysOrder quantity = 200 unitsROP = D X T + SS SS = 0

= 20 X 10 + 0 = 200 unitsThere are two type inventory in this case,

on - order - inventory or inventory on order Qo and on - handinventory or inventory on hand I

Mathematically we can say that :

If I + Qo < ROP then order QAverage inventory can be calculate :

I = Q/2 + SS I = 200/2 + 0 = 100


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The formula for calculating periodic review reorder point :

ROP = Reorder PointD = Average Daily DemandT = Average performance cycle lengthP = review period in days

SS = Safety Staock

The Average Inventory Formula for periodic is

I = average inventory in units


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To accommodate specific situation, variations and combinationsof the basic periodic and perpetual control systems have beenDeveloped. Most common are :

The replenishment level system andThe optional replenishment system.

The target of replenishment can be calculated by using thefollowing formula :

Where : TGT = replenishment levelSS = Safety StockD = Average daily demandP = Review period in daysT = Average performance cycle length


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The General reorder rule became

Where : Q = order quantityTGT = Replenishment LevelI = Inventory Status at review timeQo = Quantity on order

The Average Inventory became :

Replenishment order can be guarantee at least be equal to

the difference between max level (S) and min level (s)


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Example :

The minimum or (s) level is determined similarly to ROP,

where there is no uncertainty

When demand and performance-cycle uncertainty exist, the

Minimum stock level (s) must be incremented by an allowance forsafety stock.For example both maximum and minimum are definedin term of specific number say 100 units and 400 units respectively,The result is :

E.g : Quantity = 75 unitsQuantity on order = 0 unitsQuantity to order = 400750 = 325 units


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Reactive Methods

Replenishment era initiated when stock levels fall bellowminimum or order point. The review to anticipate these condition,

the following assuming and assumption should be discussed :i. The system should contribute equally profit.ii. Infinite availability at the source that means no constraints exist.iii. No constraint on facility capacity or inventory availability.iv. Performance cycle time can be predicted and independent.v. Demand pattern are relatively stable and consistent.

Figure 9.1 explained reactive inventory environment.

I 250ROP 200OQ 400 I 80

ROP 75OQ 200D 14

I 45ROP 50OQ 200

D 5

Resupply order for 200 units need for Ws A

I ( current inventory) above ROP for Ws B

Ws A more independentWs B will stock out because Inventory level

close to ROP


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Planning MethodUse common information base to coordinate inventory requirementacross multiple locations or stages in the value added chain,Two type of planning method are commonly used :

-> equitable inventory see Figure 9.2-> more sophisticated,

similar with MRP see. Figure 9.3


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Adaptive Logic

A combined inventory management system may be use to overcomesome of the problem s in Reactive or Planning method.Description

Adaptive decision factor

Use proactive logic Use reactive logic- Highly profitable segment - Cycle time uncertainty- Dependent demand - Demand uncertainty- Economics of sales - Destination capacity limitations- Supply uncertainty- Source capacity limitations- Seasonal supply buildup


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MANAGEMENT PROCESSES

Product/Market Classification ( Table 9.3 )Segment Strategy Definition ( Table 9.4 )

Policy Definition and RefinementPerformance Measure

Training

Information IntegrationExpert System Application


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bab 8 - 9 logistical management.copy1

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