Inventory Stock of items held to meet future demand Inventory management answers two questions How much to order When to order

Reasons To Hold Inventory Meet unexpected demand Smooth seasonal or cyclical demand Meet variations in customer demand Protect supply chain against uncontrollable external factors Take advantage of price or quantity discounts Hedge against price increases

Approaches to Inventory Management Just-in-case inventory (overstocking) Carry high inventories to ensure high customer service level (expensive!) Just-in-time inventory (understocking) Carry minimal inventory levels to control costs in exchange for risk of more stockouts

Inventory Costs Carrying Cost Ordering Cost Shortage Cost cost of holding an item in inventory Examples include warehousing, handling, pilferage, spoilage and investment costs Ordering Cost cost of replenishing inventory Shortage Cost temporary or permanent loss of sales when demand cannot be met

Dependent versus Independent Demand Item Materials With Independent Demand Dependent Demand Demand Source Company Customers Parent Items Material Type Finished Goods WIP & Raw Materials Method of Estimating Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROP MRP We start this chapter by linking Dependent Demand Inventory back to Independent Demand Inventory. You might note to students that independent demand is created external to the company, dependent demand, internally.

Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes. They key difference is the uncertainty during the two phases. Give examples at Amazon and Borders to illustrate the two views Customer Order Arrives