Professional Documents
Culture Documents
Inventory Management
Content.
Introduction Type of inventory Inventory related costs Managing cycle stock Managing saftey stock Managing seasonal stock Analysing impact of supply chain redesign on the inventory Managing inventory for short life cycle products Multiple item, multiple location inventory management
1991
1996
2001
2006
in v e n to ry tu rn o v e r ra tio
8 7 6 5 4 3 2 1 0 chemical textile machinery non metallic mineral transport metal and metal products food and beverages
years
Types of Inventory
Cycle Stock : Economies of scale Safety Stock Anticipation Stock
Seasonal Stock Speculative Stock
Drivers of Inventory
Type of Inventory Cycle Stock Safety Stock Seasonal stock Driver ( Logic) Economies of Scale Uncertainty in demand & Supply Mismatch between demand and supply rate
Dead Stock
Inventory in Chain
Supply chain consists of series of stock points connected by processes ( conversion processes and transportation processes) Each stock point has demand process and supply process Inventory at stock point : cycle stock, safety stock, seasonal stock Inventory within conversion and transportation processes: pipeline inventory
Pipeline Inventory
Inventory within conversion and transportation processes: Pipeline Inventory
Pipeline Inventory = PLT * D - PLT = Pipeline Lead-time; D = average demand
Illustration : LT -Shipment by air = 7 days LT- Shipment by sea = 45 days Average demand = 100/day
Cycle-stock Inventory
Fixed Order Quality Model ( Cont. Review Model) Q=Order Quantity, Reorder point= L*d Average cycle stock = Q/2
Average cycle stock= 0.5* 1600 = 800 units Reorder point= 15*100 =1500
Sensitivity
Q/Q* 0.5 0.75 0.9 1 1.1 1.25 1.5 1.75 2 Q 800 1200 1440 1600 1760 2000 2400 2800 3200
Analysis
Tc 12000 10000 9653.333 9600 9643.636 9840 10400 11142.86 12000
Safety Stock
R= reorder point
Safety Stock
Service level
0.500
= Safety Factor
K = Safety Factor
Inventor y
Average Inventory
d2 d3 d4 d5 d6 d7 95 150 125 28 90 93 L2 L3 15 4 L4 21 L5 L6 L7 18 11 12
d8 115 L8 18
d 9 d10 93 96 L 9 L10 19 20
30 30 0 15 30 30
15 15 15 15 15 7.5
5 0 5 5 2.5 5
Base case No supply uncertainty, No demand uncertainty Reduce demand uncertainty Reduce supply uncertainty Reduction in lead-time
Decentralise d system 16 stock points Cycle stock/stock point = Q*/2 Safety Stock per stock point Total Inv. in units for the system Total Inv. carrying cost Incremental Transportatio n cost 800
232
928
Centralization
Physical centralization Decentralized inventory & centralization of information Specialization at each stock point Mix of Centralization & decentralization
ABC Classification
Class
Percentage of items
A B C
40
Reduce ordering/setup cost Reduce demand & supply uncertainty & Reduce LT, supply chain redeisgn Reduce Seasonality in demand, Create flexible capacity Risk management Reduce Lead Time
Seasonal stock
Mismatch between demand and supply rate Uncertainty in price of material Lead-time in production/transportation process Judgmental error/ Change in economic or technological environment
Dead Stock
Summary
Indian firms find that a significant amount of money is locked up in the inventory. Organizations should use the concept of zero-based inventory planning to improve their performance on the inventory front. The decision maker controls inventory by deciding two critical questions: How much to order and When to order Based on the demand characteristics, supply characteristics, cost structure and desired service level firm can decide optimum level
Backup Slides
inventory turnover ratio 7.00 6.00 5.00 2.00 3.00 4.00 1.00 0.00
YEAR
19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06
Year
Manufacturer
Wholesaler
Retailer
2001 1991
8.57 7.50
8.89 8.89
7.95 8.28
http://www.bea.gov/national/nipaweb/NIPA_Underlying/SelectTable.asp?Benchmar k=P#S0
time trend is negative for 176 firms time trend is positive for 135 firms