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MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN

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

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MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN

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  1. MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN Week 6

  2. AGENDA • INTRODUCTION • INVENTORY IN THE FIRM • Rationale • Costs • Classifying • Visibility • Measuring Effectiveness

  3. AGENDA • TBC • SUMMARY AND CONCLUSIONS

  4. INTRODUCTION • Importance • Cost • ROA • Customer Service

  5. INTRODUCTION • In the Economy • Declining as Percent of GDP • Transportation Gains have Helped

  6. AGENDA • INVENTORY IN THE FIRM • Rationale • Costs • Classifying • Visibility • Measuring Effectiveness

  7. INVENTORY IN THE FIRM • Rationale • Batching Economies/Cycle • Sources • Procurement • Transportation • Acquisition • Trade-offs • Cost or Rate Per Unit • Inventory Carrying Cost$

  8. INVENTORY IN THE FIRM • Rationale • Uncertainty/Safety • Sources • Demand • Supply • Forecast • Trade-offs • Information • Inventory Carrying Cost$

  9. INVENTORY IN THE FIRM • Rationale • Time/In-Transit and WIP • Sources • Pipeline • Time • Trade-offs • Rate or Cost Per unit • Inventory Carrying Cost$

  10. INVENTORY IN THE FIRM • Rationale • Other • Seasonal • Anticipatory

  11. INVENTORY IN THE FIRM • Costs • Carrying • Capital • Hurdle Rate • Weighted Average Cost of Capital • Storage • Handling • Rent • Utilities

  12. INVENTORY IN THE FIRM • Costs • Carrying • Service • Tax • Insurance • Protective • Risk • Shrinkage • Shelf-life • Obsolescence

  13. INVENTORY IN THE FIRM • Costs • Ordering/Setup • Fixed in Total • Variable With Respect to Number of Orders

  14. INVENTORY IN THE FIRM • Costs • Carrying versus Ordering: Trade-off

  15. INVENTORY IN THE FIRM • Costs • Stock-out • Carrying to Meet Uncertainty • Lost Sales • Trade Down • Backorder • Lost Sale • Lost Customer • Lost Line

  16. INVENTORY IN THE FIRM • Costs • In-Transit (Pipeline) • Adjust • Obsolescence • Service • Store • Trade-off • Time • Rate

  17. 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

  18. INVENTORY IN THE FIRM • Visibility • Dimensions • Where in Time • Where in Space • Where is State of Being

  19. INVENTORY IN THE FIRM • Visibility • Requires • Tracking, Tracing, Expediting • Performance Reports by Stage • Service Failures • Reports • Notices

  20. INVENTORY IN THE FIRM • Visibility • Benefits • Customer Service • COGS • Turnover • Vendor Relations • Cash Flow

  21. INVENTORY IN THE FIRM • Measuring Effectiveness • Customer Satisfaction • Expediting • Inventory Turnover • Percent of Sales

  22. INVENTORY DECISION MAKING Chapter 7

  23. AGENDA • INTRODUCTION • PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • Fixed Order Quantity (Uncertainty) • Fixed Order Interval • In-Transit • Warehouse/WIP • Other Approaches

  24. INTRODUCTION • Major Cost Categories • Carrying • Cycle • Safety • In-Transit • Ordering • Stockout

  25. INTRODUCTION • Two Questions • How Much to Order? • When to Order?

  26. INTRODUCTION • Doing More with Less • Order Processing Systems • LIS • Transportation • Inventory Control

  27. INTRODUCTION • Key Differences • Nature of Demand • Dependent • Independent

  28. INTRODUCTION • Key Differences • Push versus Pull • Proactive versus Reactive • Pull for Independent • Push for Dependent • Most Systems are Hybrid • Individual Node versus System

  29. AGENDA • PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • Fixed Order Quantity (Uncertainty) • Fixed Order Interval • In-Transit • Warehouse/WIP • Other Approaches

  30. PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • Cycle • Covers • Mean • Average • Expected

  31. PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • Cycle • 05 Order Size • EOQ • Cycle • Transportation Minimum • Vendor Minimum

  32. PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • EOQ

  33. PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • EOQ

  34. PRINCIPAL APPROACHES • Fixed Order Quantity (Certainty) • EOQ

  35. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Variability • Demand • Time • Order Processing • Damage • Safety Stock - Constant Safety Net

  36. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Uncertainty of Demand

  37. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Uncertainty of Demand

  38. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Uncertainty of Demand and Lead Time • Probabilistic • Random • Normal • Known Properties

  39. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Uncertainty of Demand and Lead Time

  40. PRINCIPAL APPROACHES • Fixed Order Quantity (Uncertainty) • Uncertainty of Demand and Lead Time

  41. PRINCIPAL APPROACHES • Fixed Order Interval • A.K.A. • Fixed Review • Fixed Period

  42. PRINCIPAL APPROACHES • Fixed Order Interval • Decisions • Fixed Interval • Variable Quantity • A, B, or C Items? • CVA?

  43. PRINCIPAL APPROACHES • Managing In-Transit

  44. PRINCIPAL APPROACHES • Managing In-Transit

  45. PRINCIPAL APPROACHES • Managing Days in Warehouse/WIP

  46. PRINCIPAL APPROACHES • Managing Days in Warehouse/WIP

  47. PRINCIPAL APPROACHES • Other Approaches • JIT/Pull/Independent • MRP/Push/Dependent • Hybrid • Push and Pull • Increasingly the Norm

  48. SUMMARY AND CONCLUSIONS

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