inventory planning unit 4

8/8/2019 Inventory Planning Unit 4

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INVENTORY PLANNING & METHODS

-Prof. Akshay Joshi


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CONCEPTUAL FRAMEWORK OF

INVENTORY

Inventory Policy Inventory Policy is an important constituent of inventory

framework which deals with inventory policy guidelines and

inventory management strategy.

Guidelines

Inventory policy guidelines provide answers to questions like

what to purchase or manufacture, when to take action and in

what quantity.

It helps in taking decisions regarding inventory positioning and

placement at plants and distribution centers.

It helps companies to postpone positioning of inventory by

maintaining stock at the plant or they may decide to place more

products in local distribution centers to have it closer to the

market.


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Inventory Management Strategies:

1. Manage inventory at each distribution centre, independently.

2. Consider inventory interdependence across distribution sites

by managing inventory, centrally.

3. Ensure more coordination and communication in case of

centralized management.

Inventory Characteristics

Investments for inventory cannot be used to obtain other

goods or assets that could improve enterprise performance.

Funds supporting inventory investments are borrowed,

increasingthe firms interest expense.

There is always a possibility that the product may get pilfered

or become obsolete.


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TYPES OF INVENTORY

a. Manufacturing Inventory : The commitments starts with rawmaterials and component parts, including work-in-process,

and ends with finished goods. Manufacturer needs to transfer

the finished goods inventory to warehouse in closer proximity

to wholesalers and retailers.

b. Wholesale Inventory : The wholesaler purchases large

quantities from manufacturers and sells small quantities to

retailers in order to provide retail customers with assorted

merchandise from different manufacturers in smaller

quantities.In case of seasonal goods, the wholesaler is forced to commit

inventory, far in advance of selling, thus increasing the depth

& duration of risk.


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INVENTORY PLANNING METHODS

There are two methods for inventory planning:1. Fair Share Allocation.

2. Distribution Requirement Planning (DRP)

Fair Share AllocationIt is a simplified inventory management planning method that

provides each distribution facility with an equitable or fair

share of available inventory from a common source such as a

plant warehouse.

Using fair share allocation rules, the inventory manager

determines the amount of inventory that can be allocated to

each distribution centre from the available inventory at the

plant warehouse.


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The calculation to determine the number of days supply is done

as:

DS = A + Ij / Dj where

DS = no. of days supply for distribution centre inventories.

A = inventory units to be allocated from the warehouse

Ij = inventory in units for distribution center j.Dj = daily demand for distribution center j.

The amount to be allocated to each distribution center is

determined as;

Aj = (DS Ij / Dj * Dj ) whereAj = amount allocated to distribution centre j.

DS = number of days supply that each distribution center is

brought up.

Ij = inventory in units for distribution center j. Dj = daily demand


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A DRP system integrates finished goods, work in- process, and

material planning.

DRP provides for a schedules for each SKU and each

distribution facility.

Schedules for the same SKU are integrated to determine the

over all requirement for replenishing inventory such as plant

warehouse. PLANT WAREHOUSE REGIONAL WAREHOUSE

DISTRIBUTION CENTRE

CUSTOMER


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Schedule Report of DRP

The schedule report consists of current on hand balance,safety stock, performance cycle length and order quantity.

For each planning period, the schedule will report the

following:

1. Gross requirements: reflecting demands from customers andother distribution facilities supplied by the site under review.

2. Schedule receipts: are replenishment shipments planned for

arrival at the distribution centre.

3. Project on hand delivery: refers to anticipated week ending

level.

4. Project on hand inventory: prior weeks on hand inventory -

current weeks gross requirement +

scheduled receipts.


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BENEFITS OF DRP SYSTEM

MarketingBenefits:

1. Improved service levels that increase on- time deliveries and

decrease customer complains.

2. Improved and more effective promotional and new product

introduction plant.

3. Improved ability to anticipate shortages so that marketing

efforts are not expended on products with low stock.

4. Improved inventory coordination with other functions in the

enterprise.5. Enhanced ability to offer customers a coordinated inventory

management services.


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Logistical benefits

1. Reduced distribution centre freight costs resulting from

coordinated shipments.

2. Reduced inventory levels, since DRP can accurately determine

what products are needed and when.

3. Reduced warehouse space requirements because of inventoryreductions.

4. Improved inventory visibility and coordination between logistics

and manufacturing.

5. Better budgeting since DRP can simulate inventory andtransportation requirements.


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DISTRIBUTION STRATEGIES

1. Cross Docking:o Traditional warehouse moves materials into stores, keeps

them till they are needed and then move them out meet

customer demand.

inventory planning unit 4

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