managing inventory flows in the supply chain
DESCRIPTION
MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN. Week 6. AGENDA. INTRODUCTION INVENTORY IN THE FIRM Rationale Costs Classifying Visibility Measuring Effectiveness. AGENDA. TBC SUMMARY AND CONCLUSIONS. INTRODUCTION. Importance Cost ROA Customer Service. INTRODUCTION. In the Economy - PowerPoint PPT PresentationTRANSCRIPT
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MANAGING INVENTORY FLOWS IN THE
SUPPLY CHAIN
Week 6
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AGENDA• INTRODUCTION
• INVENTORY IN THE FIRM– Rationale
– Costs
– Classifying
– Visibility
– Measuring Effectiveness
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AGENDA• TBC
• SUMMARY AND CONCLUSIONS
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INTRODUCTION• Importance
– Cost
– ROA
– Customer Service
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INTRODUCTION• In the Economy
– Declining as Percent of GDP
– Transportation Gains have Helped
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AGENDA• INVENTORY IN THE FIRM
– Rationale
– Costs
– Classifying
– Visibility
– Measuring Effectiveness
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INVENTORY IN THE FIRM• Rationale
– Batching Economies/Cycle• Sources
– Procurement– Transportation– Acquisition
• Trade-offs– Cost or Rate Per Unit
– Inventory Carrying Cost$
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INVENTORY IN THE FIRM• Rationale
– Uncertainty/Safety• Sources
– Demand– Supply – Forecast
• Trade-offs– Information
– Inventory Carrying Cost$
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INVENTORY IN THE FIRM• Rationale
– Time/In-Transit and WIP• Sources
– Pipeline– Time
• Trade-offs– Rate or Cost Per unit
– Inventory Carrying Cost$
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INVENTORY IN THE FIRM• Rationale
– Other• Seasonal
• Anticipatory
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INVENTORY IN THE FIRM• Costs
– Carrying• Capital
– Hurdle Rate– Weighted Average Cost of Capital
• Storage– Handling– Rent– Utilities
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INVENTORY IN THE FIRM• Costs
– Carrying• Service
– Tax– Insurance– Protective
• Risk– Shrinkage– Shelf-life– Obsolescence
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INVENTORY IN THE FIRM• Costs
– Ordering/Setup• Fixed in Total
• Variable With Respect to Number of Orders
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INVENTORY IN THE FIRM• Costs
– Carrying versus Ordering: Trade-off
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INVENTORY IN THE FIRM• Costs
– Stock-out• Carrying to Meet Uncertainty
• Lost Sales– Trade Down– Backorder– Lost Sale– Lost Customer– Lost Line
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INVENTORY IN THE FIRM• Costs
– In-Transit (Pipeline)• Adjust
– Obsolescence– Service– Store
• Trade-off– Time– Rate
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INVENTORY IN THE FIRM
• Classifying– ABC
• Small Numbers, Big Significance
• Large Numbers, Little Significance
– Critical Value• B and C Items
• Complementary to Sale and, or Use of A Items
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INVENTORY IN THE FIRM
• Visibility– Dimensions
• Where in Time
• Where in Space
• Where is State of Being
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INVENTORY IN THE FIRM
• Visibility– Requires
• Tracking, Tracing, Expediting
• Performance Reports by Stage
• Service Failures– Reports– Notices
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INVENTORY IN THE FIRM
• Visibility– Benefits
• Customer Service
• COGS
• Turnover
• Vendor Relations
• Cash Flow
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INVENTORY IN THE FIRM
• Measuring Effectiveness– Customer Satisfaction
– Expediting
– Inventory Turnover
– Percent of Sales
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INVENTORY DECISION MAKING
Chapter 7
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AGENDA• INTRODUCTION• PRINCIPAL APPROACHES
– Fixed Order Quantity (Certainty)– Fixed Order Quantity (Uncertainty)– Fixed Order Interval– In-Transit– Warehouse/WIP– Other Approaches
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INTRODUCTION• Major Cost Categories
– Carrying• Cycle
• Safety
• In-Transit
– Ordering
– Stockout
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INTRODUCTION• Two Questions
– How Much to Order?
– When to Order?
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INTRODUCTION• Doing More with Less
– Order Processing Systems
– LIS
– Transportation
– Inventory Control
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INTRODUCTION• Key Differences
– Nature of Demand• Dependent
• Independent
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INTRODUCTION• Key Differences
– Push versus Pull• Proactive versus Reactive
• Pull for Independent
• Push for Dependent
• Most Systems are Hybrid
– Individual Node versus System
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AGENDA• PRINCIPAL APPROACHES
– Fixed Order Quantity (Certainty)
– Fixed Order Quantity (Uncertainty)
– Fixed Order Interval
– In-Transit
– Warehouse/WIP
– Other Approaches
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PRINCIPAL APPROACHES• Fixed Order Quantity (Certainty)
– Cycle• Covers
– Mean– Average – Expected
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PRINCIPAL APPROACHES• Fixed Order Quantity (Certainty)
– Cycle• 05 Order Size
– EOQ– Cycle– Transportation Minimum– Vendor Minimum
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PRINCIPAL APPROACHES• Fixed Order Quantity (Certainty)
– EOQ
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PRINCIPAL APPROACHES• Fixed Order Quantity (Certainty)
– EOQ
cost annual totalTAC
annumper percercentcost carryingW
unitper valueV
cost on)(transacti orderingA
quantityorder Q
demand annualR
Let
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PRINCIPAL APPROACHES• Fixed Order Quantity (Certainty)
– EOQ
VW
RAQ
and
Q
RAQVWTAC
Then
2
2
1
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PRINCIPAL APPROACHES
• Fixed Order Quantity (Uncertainty)– Variability
• Demand• Time• Order Processing• Damage
– Safety Stock - Constant Safety Net
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PRINCIPAL APPROACHES• Fixed Order Quantity (Uncertainty)
– Uncertainty of Demand
excessfor year per cost carrying expected
yearper cost stockout expected
cycleper cost stockout expected
out stockedunit per dollarsin cost stockout
unitsin shorts expected
unitsin excess expected
eVW
Q
RG
gkG
k
g
e
Let
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PRINCIPAL APPROACHES• Fixed Order Quantity (Uncertainty)
– Uncertainty of Demand
VW
GARQ
and
Q
RGeVW
Q
RAQVWTAC
Then
)(2
2
1
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PRINCIPAL APPROACHES
• Fixed Order Quantity (Uncertainty)– Uncertainty of Demand and Lead Time
• Probabilistic– Random– Normal– Known Properties
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PRINCIPAL APPROACHES• Fixed Order Quantity (Uncertainty)
– Uncertainty of Demand and Lead Time
period during demand ofdeviation standard
period during demandmean
length timelead ofdeviation standard
length timeleadmean
timelead during demand ofdeviation standard
timelead during demandmean
R
LT
LT
R
X
X
Let
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PRINCIPAL APPROACHES• Fixed Order Quantity (Uncertainty)
– Uncertainty of Demand and Lead Time
222 )()(
)(
LTRLT
LT
RX
and
XRX
Then
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PRINCIPAL APPROACHES
• Fixed Order Interval– A.K.A.
• Fixed Review
• Fixed Period
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PRINCIPAL APPROACHES
• Fixed Order Interval– Decisions
• Fixed Interval
• Variable Quantity
• A, B, or C Items?
• CVA?
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PRINCIPAL APPROACHES
• Managing In-Transit
doortodoor metransit ti
demand annual
t
R
Let
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PRINCIPAL APPROACHES
• Managing In-Transit
VWtR
VWRt
365
365TransitInon Cost Carying
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PRINCIPAL APPROACHES
• Managing Days in Warehouse/WIP
sein warehouspent time
demand annual
w
R
Let
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PRINCIPAL APPROACHES
• Managing Days in Warehouse/WIP
VWwR
VWRw
365
365on WIPCost Carying
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PRINCIPAL APPROACHES
• Other Approaches– JIT/Pull/Independent
– MRP/Push/Dependent
– Hybrid• Push and Pull
• Increasingly the Norm
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SUMMARY AND CONCLUSIONS