managing inventory flows in the supply chain week 6
Post on 21-Dec-2015
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TRANSCRIPT
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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