logistical resources

8/8/2019 Logistical Resources

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LOGISTICAL

RESOURCESPRESENTED BY:

BHUSHAN PAWARHARDEEP SINGH


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INFORMATION


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L.I.S.


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INFORMATIONFUNCTIONALITY

Logistics information systems are the threads that link

logistics

activities into an integrated process.

The integration builds on four levels of functionality:

Transaction

Management control

Decision analysis

Strategic planning


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INFORMATION FUNCTIONALITY


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PRINCIPLES OF LOGISTICSINFORMATION

A v a ila b ility

Accuracy

Tim e lin e ss

E xce p tio n b a se d LIS

Fle x ib ility A p p ro p ria te fo rm a t


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FORECASTING


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GENERAL FORECASTCONSIDERATIONS

The nature of demand.

Forecast components.

Forecast approaches.


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THE FORECAST PROCESS

ORECAST DATABASEORECAST PROCESS

ORECAST USERS

Forecast administration

Forecasttechnique

Forecast

supportsystem


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Contd.

Forecast technique.

Forecast support system.

Forecast administration.


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CRITERIA FOR EVALUATING THETECHNIQUES

Accuracy

The forecast time horizon

The value of forecasting

The availability of data

The type of data pattern The experience of the forecaster


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FORECAST TECHNIQUES

QUALITATIV

TECHNIQUES IMESERIES

ASUALTECHNIQUE

S


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A) QUALITATIVE TECHNIQUES

Rely heavily on expertise.

Quite costly and time consuming.

Require little historical data and

much managerial judgement.

Developed using surveys, panels andconsensus meetings.


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B) TIME SERIES TECHNIQUES

Moving average.

Exponential smoothing.

Extended smoothing.

Adaptive smoothing.


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C) CASUAL TECHNIQUES


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FORECAST ERRORMATRIX


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FORECAST ERROR

Error measurement.

Measurement level.

Feedback.


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InventoryInventory

DefinitionDefinition A stock of items held to meet future

demand

Inventory is a list for goods andmaterials, or those goods andmaterials themselves, heldavailable in stock by a business.


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Types of Inventory

Work inprocess

Work inproc

ess

Work inprocess

Finishedgood

s

RawMaterials

Vendors Customer


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Nature of Inventories Raw Materials Basic inputs that are

converted into finished productthrough the manufacturing process

Work-in-progress Semi-

manufactured products need somemore works before they becomefinished goods for sale

Finished Goods Completelymanufactured products ready for sale

Supplies Office and plant cleaningmaterials not directly enter production

but are necessary for production

Obj ti f I t


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Objective of InventoryManagement

To maintain a optimum size of inventoryfor efficient and smooth production andsales operations

To maintain a minimum investment ininventories to maximize the profitability

Effort should be made to place an orderat the right time with right source toacquire the right quantity at the rightprice and right quality

A ff ti i t


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An effective inventorymanagement should

Ensure a continuous supply of rawmaterials to facilitate uninterruptedproduction

Maintain sufficient stocks of raw materialsin periods of short supply and anticipateprice changes

Maintain sufficient finished goods

inventory for smooth sales operation,and efficient customer service

Minimize the carrying cost and time

Control investment in inventories andkee it at an o timum level


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An optimum inventory levelinvolves three types of costs

Ordering costs:-

Quotation or tendering

Requisitioning

Order placing

Transportation

Receiving, inspecting andstoring

Quality control

Clerical and staffStock-out cost

Loss of sale

Failure to meet deliverycommitments

Carrying costs:-

Warehousing or storage

Handling

Clerical and staff

Insurance

Interest

Deterioration,shrinkage, evaporation and

obsolescence Taxes

Cost of capital


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Dangers of Over investment

Unnecessary tie-up of firms fund andloss of profit involves opportunitycost

Excessive carrying cost

Risk of liquidity- difficult to convertinto cash

Physical deterioration of inventorieswhile in storage due to mishandlingand improper storage facilities


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Dangers of under-investment

Production hold-ups loss of laborhours

Failure to meet delivery commitments

Customers may shift to competitorswhich will amount to a permanentloss to the firm

May affect the goodwill and image ofthe firm


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Classification of inventory

ABC Classification

HML Classification

XYZ Classification

VED Classification

FSN Classification

SDF Classification GOLF Classification

SOS Classification


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ABC Classification

In most of the cases 10 to 20 % of theinventory account for 70 to 80% of theannual activity.

A typical manufacturing operation showsthat the top 15% of the line items, interms of annual rupees usage, represent

80% of total annual rupees usage. Next 15% of items reflect 15% of annual

rupees

Next 70% accounts only for 5% usage

A

B

C


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XYZ Classification

On the basis of value of inventory stored

Whereas ABC was on the basis of value of

consumption to value.

X High Value

Y Medium value

Z Least value Aimed to identify items which are

extensively stocked.


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HML Classification

O n th e b a sis o f u n it v a lu e o f ite m

There is 1000 unit of Q @ Rs. 10 and

10,000 units of W @ Rs. 5. A im e d to co n tro l th e p u rch a se o f

.ra w m a te ria ls

H High, M- Medium, L - Low


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VED Classification

Mainly for spare parts because theirconsumption pattern is differentfrom raw materials.

Raw materials on market demand

Spare parts on performance of plantand machinery.

V Vital, E Essential, D Desirable

Therefore V items has to be stocked moreand D Items has to be less stocked


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FSN Classification

According to the consumptionpattern

To combat obsolete items

F Fast moving

S Slow moving

N Non Moving


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SDF & GOLF Classification

Based on source of procurement

S Scarce, D- Difficult, E- Easy.

GOLF

G Government, O Ordinary, L Local, F Foreign.


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SOS Classification

Raw materials especially foragriculture units

S Seasonal

OS Off seasonal


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Basic EOQ Model

Assumption

Seasonal fluctuation in demand areruled out

Zero lead time Time lapsed betweenpurchase order and inventory usage

Cost of placing an order and receiving

are same and independent of theunits ordered

Annual cost of carrying the inventory is

constant


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EOQ Three Approaches

Trial and Error method

Order-formula approach Graphical approach


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EOQ & Re-order point

EOQ gives answer to

question How much toOrder

Re-order point givesanswer to question whento order

T i l & E M th d


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Trial & Error MethodAssumptions:-

Annual requirement (C)=1200 units

Carrying cost (I) = Rs.1

Ordering cost (O) =Rs.37.5

Order size Q 1200 600 400 300 240 200 150 120 100

Average inventory Q/2 600 300 200 150 120 100 75 60 50

No. of orders C/Q 1 2 3 4 5 6 8 10 12

Annual carrying costI* Q/2

600 300 200 150 120 100 75 60 50

Annual ordering costO*C/Q

37.5 75 112.5 150 187.5 225 300 375 450

Total annual cost 637.5 375 312.5 300 307.5 325 375 435 500


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Order- Formula approach 1/2 EOQ =(2CO/I)C = Annual demandO = Ordering cost per orderI = Carrying cost per unit 1/2EOQ =(2*1200*37.5/1) = 300 units


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Q

0 T1 T2 T3 T4

=Average inventory/Q 2

Time

In

ven

tor

y

le

ve

l

or

der

quan

ti

ty

Certainty case of the inventory cycle

.1 Here the negative slope from Q to T1

represents the inventory being used up.2 , , ,T1 T2 T3 T4 represents the replenishment

points.3 The inventory varies between 0 and Q


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Graphical method to find EOQ

.

Cos

t

in

R

S

Order quantity

= /Ordering cost DSQ

=/

Carrying

cost

CQ2

Total

cost

EOQ0


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Extension of basic EOQ model

This model can be extended toinclude quantity discounts, weresimple calculation for quantity

discount is added.

Non zero lead timeNon zero lead time


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Extension of basic EOQ model

Non zero lead time If the lead time is n then procurement

must be done prior to n days, i.e. T-n asshown in the figure

-T1 n -T2 n -T3 n -T4 nT1 T2 T3 T4

Time

Q

0

Reorder

point

Placement of aorder


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Probabilistic inventory model

In practical inventory managementassumption may not be strictlycorrect.

1.Demand may fluctuate over timedue to seasonal, cyclical andrandom influences.

2.Lead time may also fluctuatebecause of transportation delay,strikes or natural disaster. For such

reason most of the companies use

P b bili ti i t


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But in some cases even the safety stockbecomes ineffective to combat stockout. Like:-

Probabilistic inventorymodel contd

Reorder point

Safety stock

Placementof order

Leadtime

T1 T2 T3 T4 T5 T6

Stockout

A Review


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A Review

So we have dealt with

1.EOQ model

2.Its extension

3.Probabilistic model

4.

5.And now we will be dealing with special

inventory models S i l i t d l


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Special inventory model

Non Instantaneous replenishment

Quantity Discount

One period decision



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Non Instantaneous replenishment


A B C DA B C

Thus the inventory is replenished gradually than in lotsParticularly in situation were manufacturers use continues

production process

e.g. FACT makes Ammonium on a continual basis

Capacity 10 units



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Discount Quantities

If discount increases with the order

quantity, then the price of inventory

is no more constant


Hence a new approach is needed to find the

best lot size

Total cost Annual holding cost Annual ordering costAnnual cost of materi= + +



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One period decisions

If a newspaper seller does not buy

enough papers to resell on the streetcorner, sales opportunity is lost. If

the seller buys too many, the overage

cannot be sold because nobody wantsyesterdays newspaper.


Applicable to fashion goods, seasonal goods and

due to change in technology

The newsboy problem

E i t d i i t


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Emerging trends in inventorymanagement

Entering into log term contract at afixed price to reduce uncertainties

Just-in-time

Kanbans Japanese technique (Onlyproduce when demand comes)

Internet based ordering system

Supply chain management Vendor development

Investment in plant and machinery

Inventory control


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Inventory control

responsibility Purchasing naturally has vest interest in

inventories, even to the extend that in somecompanies the purchasing and stores

functions are combined. Production looks after the work in progress

Logistics plays a major role in inventory control

Inventories are economic importance to financedepartment

The fact that materials must be moved fromone place to another is of importance to

materials department

In effect the responsibility cannot be kept

on one head since inventory managementis a integrated effort


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