3 Inventory Control is everywhere. Fuel for the CarMilk to DrinkMilk to SellMotherBoards to Assemble ComputersProduction with SetupsInventory Control is everywhere.Fuel for the CarMilk to DrinkMilk to SellMotherBoards to Assemble Computers
4 Some youtube videos http://es.youtube.com/watch?v=qkZQxXJuqKo
5 Why we do store?Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.)To maintain independence of supply chainEconomies of productionImprove customer serviceEconomies of purchasingTransportation savingsHedge against futureWhy we do store?Unplanned shocks (labor strikes, natural disasters, surges in demand, etc.)To maintain independence of supply chainEconomies of productionImprove customer serviceEconomies of purchasingTransportation savingsHedge against future
6 Costs Related with Inventory Control Inventory deteriorates, becomes obsolete, lost, stolen, etc.Order processingShippingHandlingCarrying CostsCapital (opportunity) costsInventory risk costsSpace costsInventory service costsOut-of- Stock CostsLost sales costBack-order costComplacencyWhy should not we store?Non-value added costsOpportunity costInventory deteriorates, becomes obsolete, lost, stolen, etc.Order processingShippingHandlingCarrying CostsCapital (opportunity) costsInventory risk costsSpace costsInventory service costsOut-of- Stock CostsLost sales costBack-order costComplacency
7 Nature of Inventory: Adding Value through Inventory Speedlocation of inventory has gigantic effect on speedCostdirect: purchasing, delivery, manufacturingindirect: holding, stockout.Qualityinventory can be a “buffer” against poor quality; conversely, low inventory levels may force high qualityFlexibilitylocation, level of anticipatory inventory both have effectsNature of Inventory: Adding Value through InventorySpeed - location of inventory has gigantic effect on speedCost - direct: purchasing, delivery, manufacturingindirect: holding, stockout.Quality - inventory can be a “buffer” against poor quality; conversely, low inventory levels may force high qualityFlexibility - location, level of anticipatory inventory both have effects
8 Nature of Inventory:Functional Roles of Inventory TransitBufferSeasonalDecouplingSpeculativeLot Sizing or CycleMistakesPromotional
9 Logistics Costs Categoría de Coste Costes Totales % sobre Ventas % Costes LogísticosTransporte6365,4%(5.9%)62,7%Almacenamiento820,7%(0.8%)8,1%Costes de Inventarios2502,1%(3%)24,6%Administración470,4%(0.4%)4,6%Total10158,6%(10.1%)100%Source: 16th Annual State of Logistics Report, 2004(Entre parentesis los datos del 2001)
11 Costes Logísticos como Sectores diferentes tienen diferentes perfiles de costePero además la logística además también impacta en:Otros costes en la Cadena de suministro como los de fabricación materia prima o gestión de clientes.La cantidad de capital en el negocio.Y una elevada proporción del riesgo global del negocio.Costes Logísticos comoPorcentaje de ventas20%AerospacialMaquinaríaAutomovil15%Comida&BebidaElectronicaSanidadQuímicas10%Gas y PetrolDistribuciónBanca5%0%Source: ILT, McKinsey, LCP Consulting analysis
15 Main Factors defining an Inventory Policy DemandAverage Forecasted DemandError on Forecasted DemandSetupCostTimeStorageCapacityExpirationLead TimeLead Time (LT)Basic PeriodPeriod of ForecastingHorizonFinite and Infinite HorizonFinite or Infinite Production Rate
17 Why to do it with Formulae what has always been done by head? Reduce CostNumber of Different unitsTime to do Added Value tasksComputer Aid ManagementWhy to do with Formulae what has always been done by head?Reduce CostNumber of Different unitsTime to do Added Value tasks
18 Assumptions to derive the EOQ formula Production is Instantaneous.Delivery is inmediateDemand is deterministicDemand is constant over timeA production run incurs a fixed setup costProducts can be analyzed individually
19 Inventory Order Cycle Demand rate Time Lead time Order placed Order receiptInventory LevelReorder point, ROrder quantity, Q
20 EOQ Cost Model Co - cost of placing order D - annual demand Cc - annual per-unit carrying cost Q - order quantityAnnual ordering cost =CoDQAnnual carrying cost =CcQ2Total cost =
21 EOQ Cost Model TC = + CoD Q CcQ 2 = + Q2 Cc TC Q 0 = + C0D Qopt = =Q2CcTCQ0 =C0DQopt =2CoDDeriving QoptProving equality of costs at optimal point=CoDQCcQ2Q2 =2CoDCcQopt =
22 EOQ Cost Model (cont.) Annual cost ($) Total Cost Slope = 0 CcQ 2 Order Quantity, QAnnual cost ($)Total CostOrdering Cost =CoDQSlope = 0Minimum total costOptimal orderQoptCarrying Cost =CcQ2
23 EOQ Example Cc = $0.75 per yard Co = $150 D = 10,000 yards Qopt = 2CoD 2(150)(10,000)(0.75)Qopt = 2,000 yardsTCmin =CoDQCcQ2TCmin =(150)(10,000)2,000(0.75)(2,000)TCmin = $750 + $750 = $1,500Orders per year = D/Qopt= 10,000/2,000= 5 orders/yearOrder cycle time = 311 days/(D/Qopt)= 311/5= 62.2 store days
24 Required Data to generate a Policy TimeForecast PeriodHorizonLead TimeDemand for a given Period (average and Standard Deviation)Demand during HorizonCostholding Cost (€ per unit per year) =K·CuUnit Cost (€ per unit)Setup Cost S (€)Total Cost =Holding Cost + Setup CostService Level (max % of runouts that we are willing to afford)
26 Reorder Point: if stock<ROP then Buy(Q) ROP=Level of inventory at which a new order is placedROP= Maximun demand that we want to serve during Lead TimeAverage Demand during Lead TimeStandard deviation of demandSafety Stock (ss)Q: Quantity that minimizes Total CostR = dL+sswhered = demand rate per periodL = lead time
27 Safety Stocks. Basic Concepts buffer added to on hand inventory during lead timeStockoutan inventory shortageService levelprobability that the inventory available during lead time will meet demand
28 Variable Demand with a Reorder Point point, RQLTTimeInventory level
29 Reorder Point with a Safety Stock point, RQLTTimeInventory levelSafety Stock
30 Reorder Point With Variable Demand R = dL + zd Lwhered = average daily demandL = lead timed = the standard deviation of daily demandz = number of standard deviationscorresponding to the service levelprobabilityzd L = safety stock
31 Reorder Point for a Service Level Probability ofmeeting demand duringlead time = service levela stockoutRSafety stockdLDemandzd L
32 Reorder Point for Variable Demand The carpet store wants a reorder point with a 95% service level and a 5% stockout probabilityd = 30 yards per dayL = 10 daysd = 5 yards per dayFor a 95% service level, z = 1.65R = dL + z d L= 30(10) + (1.65)(5)( 10)= yardsSafety stock = z d L= (1.65)(5)( 10)= 26.1 yards
33 Periodic Review Policies: if time then Buy(OUL-Stock) OUL: Max Demand we cover during next Review Period + Lead TimeTime Review Period that minimizes Total CostEconomic Order Period (T*)Power of Two Policies
34 Order Quantity for a Periodic Inventory System Q = d(tb + L) + zd tb + L - Iwhered = average demand ratetb = the fixed time between ordersL = lead timesd = standard deviation of demandzd tb + L = safety stockI = inventory level
35 Fixed-Period Model with Variable Demand d = 6 bottles per daysd = 1.2 bottlestb = 60 daysL = 5 daysI = 8 bottlesz = 1.65 (for a 95% service level)Q = d(tb + L) + zd tb + L - I= (6)(60 + 5) + (1.65)(1.2)= bottles
36 Problem If the supplier has a lead time of 20 days? A toy manufacturer uses aproximately silicon chips annually. The Chips are used at a steady rate during the 240 days a year that the plant operates. Annual holding cost is 60 cents per chip and ordering cost is 24$. A year has 288 days.How muchh should we order each time?How many times per year are we to order?What is the length of an order cycle.What is the total cost?If the supplier has a lead time of 20 days?Which is the reorder point?Should do we have a safety stock? To prevent what?
37 ProblemDetermine optimal number to order D = 1,000 units S = $10 per order H = $.50 per unit per yearThe pack has 150 units eachManagement underestimated demand by 50%C = $5/unit There is a discount of 5% per unit if you buy more than 500 units
38 ProblemA company substitutes in a regular way a component of a given machine to ensure quality parameters of the product. Machine works during the whole year and needs 40 parts per week. The component supplier offers a price of 10 € per unit for orders with less than 300 units, and a price of 9.70 € per unit for bigger orders. The cost of setting each order is stimated on 25 €, and the holding cost is of 0.26 €/ €/ year.How many units should you request each time?If the supplier wants you to make orders bigger than 500 units ¿which is maximum unit price that should stablish for orders bigger than 500 units?
39 Karbonicas JuPeKarbonicas JuPe is a company bottling drinks where you work. To simplify we are to consider only one product. Our company has a warehouse where store product just manufactured and from where we serve the three logistics platforms that our client holds. The logistics platforms are cross-dock warehouses, where storing products has a high cost, and from where there associated retail stores are served.The lead time at the manufacturing side for Karbonicas JuPe is 7 days (i.e. it takes one week from we have been asked to produce until the product is ready at the warehouse. Each of the logistics platforms faces a demand (measured in pallets) that might be approximated by a normal distribution. (Data can be found at Table I).Each logistic platform knows the demand and the stock levels of each associated retail store. It takes two (2) days since the platform asks for products until the product reaches each retail store through the logistic platform. The inventory system is Reorder Point at each echelon. (i.e. the platforms work with ROP logic to the central warehouse of Karbonicas JuPe, and the central warehouse works with ROP to the manufacturing facility). The relation between the logistic platform and the retail stores is not considere in this problem.You are considering the posibility of eliminate the central warehouse echelon. To do that the three logistics platforms should agree a joint review period (considering all the costs) with a power-of-two policy. The factory consolidates the three orders (that have been done simultaneously) and will bottle them together. From the factory docks and without passing through the central warehouse the product will be sent directly to each logistic platform.Key questions are: how much does it cost now, how much will it cost the new system.
Your consent to our cookies if you continue to use this website.