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INVENTORY MANAGEMENT Kishore Kumar Pochampally, PhD, PMP®, Six Sigma Black Belt (ASQ) School of Business, Southern New Hampshire University Women & Money.

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Presentation on theme: "INVENTORY MANAGEMENT Kishore Kumar Pochampally, PhD, PMP®, Six Sigma Black Belt (ASQ) School of Business, Southern New Hampshire University Women & Money."— Presentation transcript:

1 INVENTORY MANAGEMENT Kishore Kumar Pochampally, PhD, PMP®, Six Sigma Black Belt (ASQ) School of Business, Southern New Hampshire University Women & Money Forum Center for Women’s Business Advancement January 9, 2014

2 Historical Perspective

3 Need for Inventory Lead time Economies of scale (quantity discounts) Uncertainty in quantity and quality of supply Uncertainty in lead time

4 customer Finished products inventory Parts inventory Supplier

5 customer Finished products inventory Parts inventory Supplier

6 customer Finished products inventory Parts inventory Supplier Lean Production / Just-in-Time Production

7 customer Finished products inventory Parts inventory Supplier pushpull

8 Central Distribution Center (can ship to any dealer in 24 hours) Dealer ADealer B push-pull

9 Concept of Functional and Innovative Products –Functional products characterized by: slow technology clock speed, low product variety, and typically low profit margins –Innovative products characterized by: fast technology clock speed and short product life cycle, high product variety, and relatively high margins. push-pull strategy push strategy

10 In a push strategy, the focus is on forecasted demand In a pull strategy, the focus is on reacting to actual demand Higher demand uncertainty leads to a preference for a pull strategy Lower demand uncertainty leads to a preference for a push strategy Fast clock speed products should have modular product structure (so that final assembly can be postponed as much as possible)

11 Economic Packaging

12 part standardization (common parts) process standardization (common processes) Standardization

13 Benetton Old Manufacturing Process Spin or Purchase Yarn Dye Yarn Finish Yarn Manufacture Garment Parts Join Parts

14 Benetton New Manufacturing Process Spin or Purchase Yarn Manufacture Garment Parts Join Parts Dye Garment Finish Garment This step is postponed

15 Third Party Logistics (3PL) Use of an outside company to perform all or part of a firm’s product distribution functions. Ryder designs, manages, and operates all of Whirlpool’s inbound logistics.

16 The Five S’s Sort Keep only what is needed Straighten A place for everything, and everything in its place Shine Clean work areas to expose problems Standardize Develop systems and procedures to monitor conformance to the first 3 rules Sustain Maintain the standard processes for the first 3 rules

17 Sort Before Sorting The Five S’s

18 Straighten After Straightening The Five S’s

19 Shine After Shining The Five S’s

20 This sheet represents our current work place. Our job during a 30 second shift, is to strike out the numbers 1 to 49 in correct sequence. Example: Instruction: Strike out numbers 1 to 49 in sequence during the 30 second shift 5S Game

21 Inventory Level Time Safety Stock Reorder Point Lead Time (L) AVG: Average Daily Demand STD: Standard Deviation of Daily Demand (Higher the variation in daily demand, higher the STD) α: Service Level (90% service level means 10% stockout)

22 Inventory Level Time Safety Stock Reorder Point Lead Time (L) AVG: Average Daily Demand STD: Standard Deviation of Daily Demand (Higher the variation in daily demand, higher the STD) α: Service Level (90% service level means 10% stockout) Reorder Point = (AVG * L) + (Safety Stock) Safety Stock = z * STD * SQRT(L) {The higher the α, the higher the z value}

23 AVG: Average Daily Demand STD: Standard Deviation of Daily Demand (Higher the variation in daily demand, higher the STD) α: Service Level (90% service level means 10% stockout) Safety Stock = z * STD * SQRT(L) {The higher the α, the higher the z value} Reorder Point = (AVG * L) + (Safety Stock) Average Inventory Level = (Order Quantity / 2) + (Safety Stock) Inventory Level Safety Stock Reorder Point Order Quantity

24 Safety Stock = z * STD * SQRT(L) {The higher the α, the higher the z value} Reorder Point = (AVG * L) + (Safety Stock) Average Inventory Level = (Order Quantity / 2) + (Safety Stock) HOW TO REDUCE INVENTORY? Reduce L Reduce STD Reduce Order Quantity

25 Thank you! Kishore Kumar Pochampally


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