MEDFORIST Supply Chain Management Information, Forecasting

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MEDFORISTSupply Chain ManagementInformation,
Forecasting Inventory ManagementSession 3
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Session 3 topics

• The value of information the bullwhip effect
• Forecasting
• Inventory Management

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• INVENTORY MANAGEMENT

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Managing inventory
A difficult task which has a significant impact
on the customer service level and supply chain
system wide cost.
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Inventories exist at every stage of the supply
chain

• Raw material inventory
• Work in process inventory, (WIP)
• Finished products inventory

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Customers, demand centers sinks
Field warehouses stocking points
Regional warehouses stocking points
Sources plants vendors ports
Supply
Inventory warehousing costs
Production/ purchase costs
Transportation costs
Transportation costs
Inventory warehousing costs
Source Simchi-Levi al, 2000
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Reasons for holding inventory

• Protection against unexpected changes in customer
  demand
• because of the short life cycle of an increasing
  number of products,
• because of the presence of many competing
  products in the marketplace.
• Uncertainty in the quantity and quality of the
  supply, supplier costs, and delivery times.
• Economies of scale

Source Simchi-Levi al. , 2000
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The role of inventory in the supply chain
Source Jacobs, 1997
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The role of inventory

• Cost savings
• To improve efficiency
• To improve availability and the responsiveness of
  the system

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Inventory costs
Since holding of inventories can cost anywhere
between 20 to 40 percent of their value, their
efficient management is critical in supply chain
operations.
Source Ganeshan al. , 2000
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What are inventory related costs?

• Purchase cost
• Holding cost
• Ordering/setup cost
• Obsolescence/Liquidation cost
• Stock out cost
• Transportation cost
• Other costs

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ABC Analysis
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Figure 13.2
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Figure 13.2
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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ABC Analysis
Figure 13.2
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity

• Assumptions
• Demand rate is constant
• No constraints on lot size
• Only relevant costs are holding and
  ordering/setup
• Decisions for items are independent from other
  items
• No uncertainty in lead time or supply

Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
29
Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
31
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Figure 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
36
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
38
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
39
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
40
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
42
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
43
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
44
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
45
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
46
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
47
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
48
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
49
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
52
Economic Order Quantity
Current cost
3000 2000 1000 0
Time between orders
TBOEOQ 75/936 0.080 year
Annual cost (dollars)
Lowest cost
50 100 150 200 250 300 350 400
Current Q
Best Q (EOQ)
Lot Size (Q)
Example 13.3
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
53
Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Economic Order Quantity
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Continuous Review
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Continuous Review
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Continuous Review
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Continuous Review
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
60
Continuous Review
IP
IP
IP
Chicken Soup
Q
Q
Q
On-hand inventory
OH
OH
OH
R
Order placed
Order placed
Order placed
Time
L
L
L
TBO
TBO
TBO
Example 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
61
Continuous Review
IP
IP
IP
Q
Q
Q
Chicken Soup
On-hand inventory
R Average demand during lead time (25)(4)
100 cases
OH
OH
OH
R
Order placed
Order placed
Order placed
Time
L
L
L
TBO
TBO
TBO
Example 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
62
Continuous Review
IP
IP
IP
Chicken Soup
Q
Q
Q
On-hand inventory
R Average demand during lead time (25)(4)
100 cases IP OH SR BO 10 200 0
210 cases
OH
OH
OH
R
Order placed
Order placed
Order placed
Time
L
L
L
TBO
TBO
TBO
Example 13.4
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
63
Uncertain Demand
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Uncertain Demand
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
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Uncertain Demand
Figure 13.6
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
66
Reorder Point / Safety Stock
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
67
Reorder Point / Safety Stock
Average demand during lead time
Figure 13.9
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
68
Reorder Point / Safety Stock
Figure 13.9
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
69
Reorder Point / Safety Stock
Safety Stock/R
Example 13.5
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
70
Reorder Point / Safety Stock
Safety Stock/R
Safety stock zsL 2.33(22) 51.3 51 boxes
Example 13.5
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
71
Reorder Point / Safety Stock
Safety Stock/R
Safety stock zsL 2.33(22) 51.3 51
boxes Reorder point ADDLT SS 250 51
301 boxes
Example 13.5
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
72
Periodic Review Systems
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
73
Periodic Review Systems
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
74
Periodic Review Systems
Figure 13.11
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
75
Periodic Review Systems
Figure 13.11
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
76
Periodic Review Systems
Figure 13.11
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
77
Periodic Review Systems
Figure 13.11
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
78
Periodic Review Systems
Figure 13.11
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
79
Periodic Review Systems
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
Example 13.7
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Periodic Review Systems
Example 13.7
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
81
Periodic Review Systems
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
82
Periodic Review Systems
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
83
Periodic Review Systems
?t 18 units L 2 weeks cycle/service
level 90
EOQ 75 units D (18 units/week)(52
weeks) 936 units
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
84
Periodic Review Systems
?t 18 units L 2 weeks cycle/service
level 90
EOQ 75 units D (18 units/week)(52
weeks) 936 units
T Average demand during the protection interval
Safety stock d (P L) zsP L (18
units/week)(16 weeks) 1.28(12 units) 123 units
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
85
Periodic Review Systems
?t 18 units L 2 weeks cycle/service
level 90
EOQ 75 units D (18 units/week)(52
weeks) 936 units
P 4 weeks T 123 units
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
86
Periodic Review Systems
?t 18 units L 2 weeks cycle/service
level 90
EOQ 75 units D (18 units/week)(52
weeks) 936 units
P 4 weeks T 123 units
C 540 585 225 1350
Example 13.8
Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
87
Comparison of Q and P Systems
P Systems Q Systems

• Convenient to administer
• Orders may be combined
• IP only required at review
• Individual review frequencies
• Possible quantity discounts
• Lower, less-expensive safety stocks

Source Krajewski Ritzman Operations
Management Strategy and Analysis,2002
88
Inventory control

• Systems for controlling inventory
• Dealing with uncertainty by using safety stock
• The impact of pooling demand
• Postponement strategies

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Pooling demand

• Serving many customers from few warehouses.
• Sharing inventory information between groups of
  users.
• What are the trade-offs involved?

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Postponement

• Differentiate product as late as possible in the
  supply chain.
• Modular or generic product differentiate right
  before delivery to customer.
• HP Printers
• Paint!
• Auto manufacturing
• What are the trade-offs?