1. MANAGING INVENTORY FLOWS IN THE SUPPLY CHAIN Week 6

2. AGENDA INTRODUCTION INVENTORY IN THE FIRM –Rationale –Costs –Classifying –Visibility –Measuring Effectiveness

3. AGENDA TBC SUMMARY AND CONCLUSIONS

4. INTRODUCTION Importance –Cost –ROA –Customer Service

5. INTRODUCTION In the Economy –Declining as Percent of GDP –Transportation Gains have Helped

6. AGENDA INVENTORY IN THE FIRM –Rationale –Costs –Classifying –Visibility –Measuring Effectiveness

7. INVENTORY IN THE FIRM Rationale –Batching Economies/Cycle Sources –Procurement –Transportation –Acquisition Trade-offs –Cost or Rate Per Unit –Inventory Carrying Cost $

8. INVENTORY IN THE FIRM Rationale –Uncertainty/Safety Sources –Demand –Supply –Forecast Trade-offs –Information –Inventory Carrying Cost $

9. INVENTORY IN THE FIRM Rationale –Time/In-Transit and WIP Sources –Pipeline –Time Trade-offs –Rate or Cost Per unit –Inventory Carrying Cost $

10. INVENTORY IN THE FIRM Rationale –Other Seasonal Anticipatory

11. INVENTORY IN THE FIRM Costs –Carrying Capital –Hurdle Rate –Weighted Average Cost of Capital Storage –Handling –Rent –Utilities

12. INVENTORY IN THE FIRM Costs –Carrying Service –Tax –Insurance –Protective Risk –Shrinkage –Shelf-life –Obsolescence

13. INVENTORY IN THE FIRM Costs –Ordering/Setup Fixed in Total Variable With Respect to Number of Orders

14. INVENTORY IN THE FIRM Costs –Carrying versus Ordering: Trade-off

15. INVENTORY IN THE FIRM Costs –Stock-out Carrying to Meet Uncertainty Lost Sales –Trade Down –Backorder –Lost Sale –Lost Customer –Lost Line

16. INVENTORY IN THE FIRM Costs –In-Transit (Pipeline) Adjust –Obsolescence –Service –Store Trade-off –Time –Rate

17. INVENTORY IN THE FIRM Classifying –ABC Small Numbers, Big Significance Large Numbers, Little Significance –Critical Value B and C Items Complementary to Sale and, or Use of A Items

18. INVENTORY IN THE FIRM Visibility –Dimensions Where in Time Where in Space Where is State of Being

19. INVENTORY IN THE FIRM Visibility –Requires Tracking, Tracing, Expediting Performance Reports by Stage Service Failures –Reports –Notices

20. INVENTORY IN THE FIRM Visibility –Benefits Customer Service COGS Turnover Vendor Relations Cash Flow

21. INVENTORY IN THE FIRM Measuring Effectiveness –Customer Satisfaction –Expediting –Inventory Turnover –Percent of Sales

22. INVENTORY DECISION MAKING Chapter 7

23. AGENDA INTRODUCTION PRINCIPAL APPROACHES –Fixed Order Quantity (Certainty) –Fixed Order Quantity (Uncertainty) –Fixed Order Interval –In-Transit –Warehouse/WIP –Other Approaches

24. INTRODUCTION Major Cost Categories –Carrying Cycle Safety In-Transit –Ordering –Stockout

25. INTRODUCTION Two Questions –How Much to Order? –When to Order?

26. INTRODUCTION Doing More with Less –Order Processing Systems –LIS –Transportation –Inventory Control

27. INTRODUCTION Key Differences –Nature of Demand Dependent Independent

28. INTRODUCTION Key Differences –Push versus Pull Proactive versus Reactive Pull for Independent Push for Dependent Most Systems are Hybrid –Individual Node versus System

29. AGENDA PRINCIPAL APPROACHES –Fixed Order Quantity (Certainty) –Fixed Order Quantity (Uncertainty) –Fixed Order Interval –In-Transit –Warehouse/WIP –Other Approaches

30. PRINCIPAL APPROACHES Fixed Order Quantity (Certainty) –Cycle Covers –Mean –Average –Expected

31. PRINCIPAL APPROACHES Fixed Order Quantity (Certainty) –Cycle 05 Order Size –EOQ –Cycle –Transportation Minimum –Vendor Minimum

32. PRINCIPAL APPROACHES Fixed Order Quantity (Certainty) –EOQ

33. PRINCIPAL APPROACHES Fixed Order Quantity (Certainty) –EOQ

34. PRINCIPAL APPROACHES Fixed Order Quantity (Certainty) –EOQ

35. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Variability Demand Time Order Processing Damage –Safety Stock - Constant Safety Net

36. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Uncertainty of Demand

37. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Uncertainty of Demand

38. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Uncertainty of Demand and Lead Time Probabilistic –Random –Normal –Known Properties

39. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Uncertainty of Demand and Lead Time

40. PRINCIPAL APPROACHES Fixed Order Quantity (Uncertainty) –Uncertainty of Demand and Lead Time

41. PRINCIPAL APPROACHES Fixed Order Interval –A.K.A. Fixed Review Fixed Period

42. PRINCIPAL APPROACHES Fixed Order Interval –Decisions Fixed Interval Variable Quantity A, B, or C Items? CVA?

43. PRINCIPAL APPROACHES Managing In-Transit

44. PRINCIPAL APPROACHES Managing In-Transit

45. PRINCIPAL APPROACHES Managing Days in Warehouse/WIP

46. PRINCIPAL APPROACHES Managing Days in Warehouse/WIP

47. PRINCIPAL APPROACHES Other Approaches –JIT/Pull/Independent –MRP/Push/Dependent –Hybrid Push and Pull Increasingly the Norm

48. SUMMARY AND CONCLUSIONS