Академический Документы
Профессиональный Документы
Культура Документы
Management
Sessions 13, 14
December 2017
Inventory Management
2
Safety Stock
• Inventory carried for the purpose of satisfying demand that exceeds
the amount forecasted in a given period
• Trade-of
• Higher levels of product availability and customer service
• Higher level of average inventory and therefore increases holding costs
3
Calculating appropriate
safety stock
Safety Stock
Z ( sD2 L + D2 sL2 )
4
Safety stock calculation:
Example
Motorola obtains cell phones from its contract manufacturer located in
China to serve the US market. The US market is served from a Warehouse
in Memphis, Tennessee. Daily demand at the Memphis warehouse is
normally distributed with a mean of 5000 and a standard deviation of
4000. The warehouse aims for a CSL of 99 percent. The company is
debating whether to use sea and air transportation from china. Sea
transportation results in a lead time of 36 days and costs $0.50 per
phone. Air transportation results in a lead time of 4 days and costs $1.50
per phone. Each phone costs $100 and Motorola uses holding costs of 20
percent. Given the minimum lot sizes, Motorola would order 100,000
phones at a time (on average, once every 20 days) if using sea transport
and 5000 phones at a time (on average, daily) if using air transport.
Warehouse works 365 days in a year. ( NORMINV(0.99 ) = 2.33 )
5
Safety stock calculation:
Example solution
Z ( sD2 L + D2 sL2 )
Z = Norminv(CSL) = Norminv (0.99) = 2.33
sD = 4000, sL = 0
# Assumption for Ordering Cost: Safety stock is built-up during the start of the year and
maintained thereafter.
6
Calculations for annual ordering and holding cost for cycle stock depicted in earlier session
Steps to reduce safety stock
levels
Z ( sD2 L + D2 sL2 )
8
Safety stock in an
aggregated model
• Suppose there are n regions, with demand in each region being independent and
normally distributed
• Di : Mean period demand for each region i, i = 1,…,n
• si : Standard deviation of period demand in region i, i = 1,…,n
Z(s
n
s s
C 2
i
2
L) D
= i
i =1 i =1
Z Ls D
C
• Safety stock, SS =
9
aggregated model: Example
1
ABC Inc. produces printers in its Chinese factory for sale in SAARC countries.
Currently, ABC Inc. assembles and packs printers for direct sale in individual SAARC
countries. The distribution of weekly demand in diferent countries is normally
distributed with means and standard deviation as follows:
Country Mean Standard Deviation
Sri Lanka 3000 2000
Nepal 2500 1600
Bhutan 1000 800
India 4000 2400
Assume demand in diferent countries to be independent and the lead time from
manufacturing factory is eight weeks. The company follows continuous replenishment
policy. ABC Inc. decides to build a central DC in one of the SARRC countries and shall
now ship printers directly to this DC. Deliveries to individual countries shall be from
DC. The printers are still manufactured in China with a lead time of eight weeks.
How much total safety inventory does ABC Inc. require for all SAARC countries if it
targets a CSL of 95 percent?
10
aggregated model: Example
1 solution
• CSL = 95%
• Z = Norminv (95%) = 1.64
• Lead time in weeks = 8
s s
C 2
D
= i
Sri Lanka 3000 2000 9,277 i =1
Total 31,543
= (1.64) ( 8) (3600)
= 16,699
Z(s
n
= s s
C 2
2
L) =
i D
i =1
i
i =1
= (100 * 102)
= 100 * Norminv(0.95) * (102*2)
= 100
= 2,326 units
• Safety stock = Z L s D
C
13
Supply chain coordination
• All stages in the supply chain take actions that are aligned and
increase total supply chain surplus
14
Bull-whip effect
• Fluctuations in orders
increase as they move up
the supply chain from
retailers to manufacturers
• Distorts demand
information within the
supply chain
16
Obstacles to Coordination
Incentive Obstacles
• Local optimization
• Sales force incentives
Operational Obstacles
• Large lots
• Large replenishment lead times
• Rationing and shortage gaming
Pricing Obstacles
• Lot-sized based quantity decisions
• Price fluctuations leading to forward buying
Behavioral Obstacles
• Local view instead of end-to-end supply chain view
• Reactive thinking instead of root-cause analysis
• Inter-functional blaming
• Trust-deficit 17
Achieving Supply Chain
Coordination
Aligning Goals and Incentives
• Incentives to maximize supply chain surplus
• Align incentives across functions
• Pricing for coordination
• Change sales force incentives from retailer demand to customer demand
Sellers and buyers in a supply chain may collaborate along any or all of
the following:
• Strategy and planning: Scope of collaboration incl. roles,
responsibilities, extent and time period
• Demand and supply management: Forecasting
• Execution: Order placement to fulfillment
• Analysis: Exceptions and metrics assessment
19
Common CPFR Scenarios
Where Applied in Industries Where
CPFR Scenario Supply Chain Applied
Retail event collaboration Highly promoted channels All industries other than
or categories those that practice EDLP
20
CPFR: Requirements and
Risks
Requirements
• Organizational re-alignment to customer- or geography-specific needs
• Technology enabler for timely and accurate information sharing
Risks
• Misuse of information
• Frequent alignment of technology
• Cultural mismatch
• Selection of right level of coordination
• Initiate CPFR with DC-level or event-level before moving to store-level
21
Transportation
22
Stakeholders
• Infrastructure providers
• Transportation Policy-makers
• Shipper (1PL)
• Transportation, inventory, information, sourcing and facility costs
• Carrier (2PL)
• Transportation equipment costs
• Operating costs
• 3rd Party (3PL)
• Outsourced logistics services provider
• 4th Party (4PL)
• Takes over a function (such as transportation, warehousing etc.)
• Manages 3PLs
Then there were other parties such as 5PL, 6PL, … 10PL etc.
23
Transportation Modes
• Air
• Rail
• Water
• Package Carriers
• Trucks
• TL
• LTL
• Pipeline
• Intermodal
24
Transportation Modes
Air Package Carriers
• Fast and expensive • Companies like FedEx, UPS, etc.
• Mostly used for small items or • Usually carry small packages: letters
time-sensitive shipments to shipments of about 150 pounds
• Costs • Use air, truck and rail modes
• Fixed infrastructure cost • Expensive
• Fixed per flight costs (crew & fuel) • Rapid and reliable delivery
• Variable costs based on cargo • Value added-services such as
• Key issues processing, product assembly and
• Location/number of hubs package tracking
• Location of fleet bases/crew bases • Consolidation of shipments
• Schedule optimization • Key Issues
• Fleet assignment • Location and capacity of transfer
• Crew scheduling points
• Yield management • Scheduling and routing of delivery
• IT capability to track packages 25
Transportation Modes
Truck
• More expensive than rail but benefit of door delivery
• Large shipment sizes
27
Transportation Modes
Pipeline Intermodal
• Primarily for crude petroleum, • Use of more than one mode of
refined petroleum products, transportation
natural gas • Most common example: rail/truck
• Significant initial fixed cost • Grown considerably with increased
• Best for large and predictable use of containers
demand • Enabler of global trade
• Not suited for sending petrol to • Single-point-of-contact for shippers
petrol station
• Key issue
• On-time transfer of cargo from one
mode to the next
28
Design options for
Transportation Networks
• Direct shipping network
• Direct shipping with milk runs
• All shipments via Intermediate DC with storage
• All shipments via Intermediate Transit Point with Cross-Docking
• Shipping via DC using milk runs
• Tailored network
29
Design options for
Transportation Networks
Network Structure Pros Cons
Direct shipping No warehouse, easy to High inventories (due to
coordinate large lot sizes)
Direct shipping with milk Lower inventories Increased coordination
runs May have lower
transportation costs
All shipments via Lower inbound Increased inventory and
Intermediate DC with transportation costs increased handling at DC
storage
All shipments via Low inventory, low Increased coordination
Intermediate Transit Point inbound transportation
with Cross-Docking costs
Shipping via DC using milk May have low outbound Increased coordination
runs transportation costs
Tailored network Match of mode with Highest coordination
customer / product complexity
requirements
30
Trade-offs in Transportation
Design
Transportation vs. inventory cost trade-of
• Choice of transportation mode
• Inventory costs include cycle stock, safety stock and in-transit stock
• Faster modes for products with high value / weight ratio and vice versa
• Inventory aggregation
• Aggregation reduces inventory and inbound transportation costs, but increase
outbound transportation costs
• Aggregate when value / weight ratio is high, demand uncertainty is high or
customer orders in small lot-sizes
32
Role of IT in Transportation
• Required due to the complexity and scale of transportation
33