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Inventory :confetti_ball: (Carrying costs (Expense - associated with…
Inventory
:confetti_ball:
Inventory functionality
Ideal
: response based supply chain, zero inventory
Geographical specialization
- being able to serve different areas in a specialized way
Decoupling
- separation of manuf. from selling
Supply-demand balancing
- balancing availability with consumption, timing of this
Buffering
- accommodating demand in excess of forecast
Inventory definitions
Inventory policy
Guidelines: of when to buy (postpone vs speculative strategies), what to buy and quantity
Practice: centralized vs independently managed inventory
Service level
performance cycle time, 2. case fill rate, 3. line fill rate, 4. order fill rate
IS performance target specified by management, has
four
key measures
Definitions
Inventory
- is the materials, components, work-in-process and finished product typically stocked in the logistical system to achieve service objectives
Average inventory
- one-half order quantity plus safety stock
Reorder point
- defines when a replenishment order is initiated
Types
Transit inventory
Speculative inventory - bought prior to need
Obsolete inventory - stock that is out of date
Safety stock - protects against uncertainty
Carrying costs
Expense
- associated with maintaining inventory
Capital
- Uses interest rate, is cash to replace capital invested in inventory
Tax
- Levy based on inventory value eg. VAT
Insurance
- expense based on estimated risk related to loss (linked to product type, security of storage facility)
Obsolescence
- costs resulting from deterioration of product. Eg. expired stock, old fashioned, markdowns, destruction
Storage
- focus is on product holding; Inventory storage cost = average daily physical space occupied x time x standard cost factor
Planning
When to order
Trigger
- can be in 'days of cover' or 'units'
R
= Reorder point,
D
= average daily demand in units per day,
T
= average performance cycle length in days,
SS
= Safety stock in units
Reorder point
- keyword, based on demand
Formula: R = D X T + SS
How much to order
Economic Order Quantity (EOQ)
= sqrt{ (2X
Co
X
D
) / (
Ci
X
U
) }
Co - Cost per day; Ci - Annual inventory carry cost, D - Annual sales volume, Unit cost per day
Volume transport rates
- General rule: the greater the weight of an order, the lower the cost per kg
Quantity discounts
- must offset the added inventory carry cost
Managing uncertainty
Demand uncertainty
Performance cycle uncertainty
Safety stock
Estimating fill rate
Demand dependent replenishment
Management policies
Inventory control
Reactive methods
Planning methods
Collaborative inventory replenishment
Management practices
Product market classification
Segment strategy definition
Policies and parameters
Inventory risks
Manufacturer: long-term, narrow product line, deep
Wholesaler: medium duration, medium breadth, deep
Retailer: short-term, broad (assortment), not deep
Dimensions: time, depth, breath