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Introduction into Logistics PhD Natasha Lutovinova Logistics Lecturer Room: G1.006.

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Presentation on theme: "Introduction into Logistics PhD Natasha Lutovinova Logistics Lecturer Room: G1.006."— Presentation transcript:

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2 Introduction into Logistics PhD Natasha Lutovinova Logistics Lecturer Room: G1.006

3 Handbook: Paul R. Murphy & Donald F. Wood, Contemporary logistics (New Jersey 2011), 10 th edition 3

4 Introduction into Logistics Course Outline Introduction SCM Concept, Inventory Demand Management, Warehousing Management Transportation Management, International Logistics Poster Session

5 CHAPTER 8 Inventory Management 5 - 3

6 Learning Objectives To understand the costs of holding inventory To understand reordering concepts To differentiate the various inventory flow patterns 6 - 3

7 10 g € g € g € g € 1.32

8 Delivery Procurement Manufacturing Customer’s order cycle 5.14 The lead-time gap Logistics lead time Order fullfilment Lead-time gap Logistics lead time Customer’s order cycle 5.15 Closing the lead-time gap 3 - 8

9 Inventory Management Inventories are stocks of goods and materials that are maintained to satisfy normal demand patterns Inventory management Decisions drive other logistics activities Different functional areas have different inventory objectives Inventory costs are important to consider Inventory turnover 9 - 3

10 Inventory Management Inventory management (continued) Inventory costs are important to consider Inventory turnover: cost of goods sold divided by average inventory at cost cost of goods sold = inventory turnover average inventory $200,000 = inventory is sold 4 times per year $ 50,000 Compare with competitors or benchmarked companies

11 Visser, Logistics: Principles, fig.1.8 cost structure of physical distribution

12 Logistics objectives are mutually interdependent Low inventory turnover = high inventory carrying costs, little (or no) stockout costs High inventory turnover = low inventory carrying costs, high stockout costs Managing the trade-off is important to maintain service levels Total cost approach Reduction of the lead time Reduction of the lead time Improve delivery reliability Improve delivery reliability Increase flexibility Increase flexibility

13 Inventory Classifications Cycle (or base) stock Safety (or buffer) stock Pipeline (or in-transit) stock Work in process Speculative stock Strategic stock Dead Stock Psychic stock

14 14 - 3

15 Inventory-Related Costs Inventory carrying (holding) costs Obsolescence Inventory shrinkage Storage costs Handling costs Interest charges Insurance costs Taxes Opportunity cost

16 Inventory-Related Costs Stockouts Stockout costs Trade-offs Exist between Carrying and Stockout Costs

17 When to Order Fixed order quantity system Fixed order interval system Reorder (trigger) point (ROP) ROP = DD x RC (under certainty) ROP = (DD x RC) + SS (under uncertainty) Where DD = (average) daily demand RC = length of replenishment cycle SS = safety stock

18 When to Order ROP = DD x RC (under certainty) ROP = (DD x RC) + SS (under uncertainty) DD = daily demand=30 pieces RC = replenishment cycle=2 (days) SS = safety stock=60 Reorder point = 120 pieces

19 R = Variable order interval Q = Fixed order quantity T = Fixed order interval S = Variable order quantity Fixed Variabel Order quantityR, QR, S Order intervalT, QT, S Quantity Ordering Reorder (trigger) point

20 How Much to Reorder Economic order quantity (EOQ) in units EOQ = √2DB/IC Where EOQ = the most economic order size, in units D = annual demand, in units B = administrative costs per order of placing the order C = carrying costs of the inventory (%) I = dollar value of the inventory, per unit

21 How Much to Reorder Economic order quantity (EOQ) in dollars EOQ = √2AB/C Where EOQ = the most economic order size, in dollars A = annual usage, in dollars B = administrative costs per order of placing the order C = carrying costs of the inventory (%)

22 Figure 9-2: Determining EOQ by Use of a Graph

23 How Much to Reorder Economic order quantity (EOQ) in dollars EOQ = √2AB/C A = annual usage= $1000 B = administrative costs= $25 C = carrying costs= 0.2 (20%) EOQ = √2*1000*25/0.2 = $500 order size

24 How Much to Reorder? Economic order quantity (EOQ) in dollars EOQ = √2AB/C A = annual usage B = administrative costs C = carrying costs EOQABC € 2.000,0020% € 250,0025%

25 How Much to Reorder Economic order quantity (EOQ) in units EOQ = √2DB/IC D = annual demand, in units= 200 B = administrative costs= 25 C = carrying costs= 5 I = value per unit= 0.2 (20%) EOQ = √2*200*25/.20*5 =

26 How Much to Reorder? Economic order quantity (EOQ) in units EOQ = √2DB/IC D = annual demand (in units) B = administrative costs C = carrying costs I = value per unit EOQDBCI € 50,0020% € 75, € 250,0025% € 50, € 75,0020% € 25, € 2.000,0020% € 1.000, € 75,0015% € 50, – 178 – 183 – – 22 – 24 – – 95 – 100 – – 280 – 290 – – 322 – 336 – 344

27 Table 9-3: EOQ Cost Calculations Number of orders per year Order size ($) Ordering cost ($) Carrying cost ($) Total cost (sum of ordering and carrying cost) ($) 11, BC

28 Inventory Flows Safety stock can prevent against two problem areas Increased rate of demand Longer-than-normal replenishment When fixed order quantity system like EOQ is used, time between orders may vary (When reorder point is reached, fixed order quantity is ordered)

29 Figure 9-3: Inventory Flow Diagram Reorder point Average inventory in units = Q/2 (+ SS)

30 Contemporary Approaches to Managing Inventory ABC Analysis

31 Visser, Logistics: Principles, fig.5.4 ABC analysis

32 Contemporary Approaches to Managing Inventory ABC Analysis Just-in Time (JIT) Approach

33 Figure 9-4: Trailer that opens on the side and is used for rapid discharge of parts

34 Contemporary Approaches to Managing Inventory ABC Analysis Just-in Time (JIT) Approach Vendor-Managed Inventory (VMI) Inventory Tracking

35 Inventory Management: Special Concerns FiFo Complementary items Dead inventory Deals Defining stock-keeping units (SKUs) Informal arrangements outside the distribution channel Repair and replacement parts Reverse logistics Substitute Products

36 Next time: Assignment Obligatory:  Choose a product, draw an inventory flow diagram and describe it


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