Supply chain management

SUPPLY CHAIN MANAGEMENT

Session 6 Inventory Management

Barcelona, Fall 2018

Luis J. Díaz. Industrial Engineer. M.B.A.

ØInventory Management is risky. ØManufacturer:

ü Raw materials ü Component parts ü Work in process ü Finished goods

ØWholesaler: Buys large quantitites from manufacturers and sells smaller quantities to retailers ØRetailers: Purchase a wide variety of products.

ØInventory turnover: Ratio of sales for a time period divided by average inventory.

SUPPLY CHAIN MANAGEMENT INVENTORY MANAGEMENT MAIN CONCEPTS

ØINVENTORY POLICY: What to purchase or manufacture, when to take action and in what quantity. ØAVERAGE INVENTORY (*): The materials, work in process and finished product tipically stocked in the logistical system are referred to as average inventory. ØSAFETY STOCK: S.S is mantained in a logistical system to protect against demand and performance cycle uncertainty.

SUPPLY CHAIN MANAGEMENT INVENTORY MANAGEMENT MAIN CONCEPTS

ØAVERAGE INVENTORY IS ONE HALF ORDER QUANTITY PLUS SAFETY STOCK. ØREORDER POINT ØECONOMIC ORDER QUANTITY MODEL (EOQ): Balancing the cost of ordering and the cost of maintaining average inventory

SUPPLY CHAIN MANAGEMENT INVENTORY MANAGEMENT MAIN CONCEPTS

ICC is the expense associated with maintaining inventory: Annual inventory carrying cost percent multiplied by average inventory value

Ø Capital: Cost of money markets Ø Insurance: Based upon estimated risk or

loss over time Ø Obsolescence: Deterioration of product

during storage. Ø Storage: Product holding (not related with

inventory value)

SUPPLY CHAIN MANAGEMENT INVENTORY CARRYING COST

HOW MUCH TO ORDER: The point at which the sum of ordering and carrying cost is minimized represents the total lowest cost.

E.O.Q.. (ECONOMIC ORDER QUANTITY) – Assumptions:

§ All demand is satisfied § Rate of demand is continuous, constant and

known § Replenishment peformance cycle time is

constant and known § There is a constant price of product

independent on order quantity § No inventory in transit § No limit on capital

– EOQ Adjustments § Volume transportation rates § Quantity discounts

SUPPLY CHAIN MANAGEMENT PLANNING INVENTORY

INVENTORY CONTROL. How often inventory levels are reviewed to determine when and how much to order. Perpetual review: ROP = D x T +SS where

üROP : Reorder point in units üD: Average daily demand in units üT: Average performance cycle length

in days üSS: Safety stock in units

SUPPLY CHAIN MANAGEMENT INVENTORY MANAGEMENT POLICIES

SUPPLY CHAIN MANAGEMENT INVENTORY CONTROL

WHEN TO ORDER R= D x T where: •R: reorder point •D: average daily demand •T: Average performance cycle length in days

R = D x T + SS where •SS: Safety stock in units

SUPPLY CHAIN MANAGEMENT INVENTORY CONTROL

Periodic review: ROP = D(T + P/2) + SS where P = Review period in days

Periodic control systems requiere larger average inventories than pepetual systems

SUPPLY CHAIN MANAGEMENT INVENTORY MANAGEMENT: M.R.P.

REQUIREMENTS PLANNING (MRP) (SEE EXAMPLE)

The depth is a reflection of the total number of pieces in the stocking inventory.

Inventory risk is the chance that companies won't be able to sell its goods supply or that there will be a decrease in value

The width is reflected in the total of individual stocking part numbers in the inventory.

SUPPLY CHAIN MANAGEMENT OTHER INVENTORY CONCEPTS

THANK YOU!