1. Symptoms of Poor Inventory Management
Increasing number of back orders
Increasing investment in inventory with backorders remaining constant
High customer turnover rate
Increasing number of orders cancelled
Periodic lack of sufficient storage space
Wide variance in turnover of major inventory items in distribution centers
Deteriorating relationship with intermediaries, as typified by dealer cancellations and declining orders.
Large quantities of obsolete items.

2. Methods/Techniques of Inventory Reduction
Multiechelon inventory planning, ABC analysis
Lead time analysis
Elimination of low turnover & or obsolete item
Analysis of pack sizes and discount structure
Examination of procedures for returned goods
Encouragement/Automation of product substitute
Installation of formal reorder review systems
Measurement of fill rates by skills
Analysis of Customer demand characteristics
Development of formal sales plan and demand forecast by predetermined logic
Reengineering inventory management.

3. Determining stock out cost Stt
Stock of costs occur when seller is unable to satisfy demand with available inventory, one of our possible events occur
Customer waits until the product is available
The customer back orders the product
The Seller looses a sale
The seller losses a customer
Determining stock out cost
Identify a stock out's potential consequences I.e. back order, lost sale, Lost customer
Calculate each result’s expense or loss of profit and then to estimate the cost of single stock out.
Assume that 70% of stock out results in back order and a back order results in extra handling cost. Say % result in lost sales for item
Stt

4. and this loss equals to $20 in lost profit margin; and 10% result in lost customer, or a loss of say $200.
Calculate the overall impact,
70% of $ = $4.20
20% of $ = $4.00
10% of $ = $20.00
Total $28.20
Estimated cost per stock out.
Since $ is the average dollar amount the firm can save by averting a stock out, the firm should carry additional inventory to protect against stock outs only as long as carrying additional inventory costs less than $

5. Elements of Inventory Carrying Cost
Capital
Costs
Inventory Investment
Insurance
Inventory
Service Costs
Taxes
Plant Warehouses
Inventory
Carrying
Costs
Public Warehouses
Storage
space Costs
Rented Warehouses
Company Owned WH
Obsolescence
Damage
Inventory
risk costs
Shrinkage
Relocation Costs

6. Assumptions
Inventory transfers between stocking locations at the same level are not common practice
Lead times do not vary, and thus inventory concentration is not affected by inbound supply uncertainty.
Customer service level, as measured by inventory availability, is constant regardless of the number of stocking locations.
Demand at each location is normally distributed..

7. A B C Analysis

8. QR
QR is effective for synchronizing product flow with information flow.
Vendor commits to meet criteria as lead time, service levels & fill rates, EDI communication & possibly vendor managed inventory.
Retailer commits to provide accurate timely demand information
Performance criteria applied is precise.

9. Elements of Q.R.
Shorter, compressed time horizon
Real time information available by S.K.U.
Seamless, integrated logistic network that depend on rapid incoming transporting, strategic cross docking, and effective store receipt and distribution system
Partnership relationship between manufacturers and retailers, including sharing of processes and information.
Redesign of manufacturing operations and processes to reduce lot sizes and changeover times, enhance flexibility and responsiveness and coordinate MPS with forecasts and actual customer orders.
Commitment to TQM, process improvement and ‘Service response logistics’.

11. REVENUE LOSSES IN THE APPAREL PIPELINE (% RETAIL SALES)
Fibre&textile
Apparel
Retail
Total
Forced markedown
0.6% 4%
10%
14.6%
stockouts
0.1%
.4%
3.5%
1.0%
2.5%
2.9%
6.4%
total
1.7%
6.9%
16.4%
25%

12. Q R System 66 W Inventories Retail Apparel Textile 46 W Fibre
Weeks inventory
21 W
Present
Quick
Very quick
RWL/LV/PT-17

13. Efficient Consumer Response
Report for the US Food Marketing Institute States:Today’s supply chain consists of a series of individual components, each pushing product to the next player in the supply chain.Each transaction adds substantial costs: selling expense, buying expense, purchasing ordering, order processing, order assembly, shipping, receiving, checking, put away, invoicing, paying,deducting, reconciling and more. Further, receivables average several weeks for each transaction. Very little, if any of these costs add value to the ultimate product or service the consumer receives.

14. Efficient Consumer Response
The spirit of ECR has been captured by Birds Eye Wall’s,a Unilever frozen food company in the United Kingdom. It defines ECR as ‘the process which facilitates the true working together to achieve ultimate consumer satisfaction, maximizing business efficiency for mutual benefit’.
The objective of ECR as defined by ECR Europe Conference in 1996, is “ to fulfill consumer wishes better, faster and at least cost.”Means Reduce Inventory thereby permitting price reductions or higher margins and secondly strengthen brand propositions that are compatible between manufacturer and retailer in order to meet consumer needs, thereby stimulating category growth and increasing revenue.

15. The power of ECR lies in cooperation and the sharing of information and expertise between trading partners towards a common goal of increased consumer satisfaction.
ECR is a tool for integrating separate aspects of supply chain to deliver increased value to the consumer
ECR takes a process view, defining four core processes that span all supply chain players
Research conducted by Anderson Consulting for ECR in 1997 found that most ECR related initiatives had centered around working together to reduce costs

16. Retailer
Wholesaler
Introduce
Product
Promote
Product
Merchandise
Products
Replenish
Products
Manufacturer
Supplier

17. ECR Improvement concepts
Demand management
Electronic
Funds
Transfer
Item coding
And database
maintenance
Electronic
Data
Interchange
Supply management
Integrated
Suppliers
Synchronized
Production
Continuous
Replenishment
Automated
Store ordering
Reliable operations
Crossdocking

18. Improvement Concepts
Demand Management: which covers those activities focused on improving the product offering to consumers
Supply management: which covers several initiatives designed to improve the flow of product through the supply chain
Enabling Technologies: which are activities that act as enablers for the other ECR improvement concepts, many of which are related to electronic commerce

19. For ECR to be successful
For ECR to be successful. Seven basic capabilities are required from manufacturing and retail firms.
Integrated EDI
Continuous Replacement
Computer assisted ordering
Flow through distribution
Activity based costing
Category Management – to optimize design, promotion, stocking etc.
Flexible manufacturing – to match production with actual demand.

22. Distributor Warehouse
Before ECR
Supplier Warehouse
38 days
Distributor Warehouse
(Forward buy 9 days)
turn inventory 31 days
40 days
Retail store
26 days
Consumer
purchase
Packing
Line
104 days
After ECR
Distributor
Warehouse
12 days
Packing
Line
Supplier
Warehouse
27 days
Retail store
26 days
Consumer
purchase
61 days
RWL/LV/PT-17

24. Estimated ECR cost Reductions
Grocery Market Total Cost(US$bn)
ECR Reduction Potential(% of Total costs)
ECR reduction potential (Us $ bn)
491
5.5 %
26.9 18
6.2 %
1.1
307
6.3 %
19.3

25. Estimated ECR Inventory Reductions
Grocery market average inventory(days)
ECR reduction potential (%)
ECR reduction potential (days) 43
42% 18 50
28% 14
104
41%

27. BULLWHIP EFFECT 1. Information reduces inventory in supply chain
2. Information enables make better forecasts, accounting for promotions and market changes
3. Information results in coordination of manufacturing and distribution systems strategies.
4. Information enables retailers to better serve their customers by offering tools for locating desired items.
5. Information enables retailers to react and adapt to supply problems more rapidly.
6. Information enables lead time reduction.
Increase in variability as we travel up in S.C. is referred to as “Bullwhip Effect”

28. Variability of orders placed by customers
Variability of orders placed by retailers
variability of orders placed by Distributors
wholesaler is forced to carry more inventive as safety stock.
Factory
Distributor
Wholesaler
Retailer
Customer
Order
Time
Factors -
Demand forecasting
Lead time
Batch ordering
Price fluctuations, inflated order.
RWL/LV/PT-17

29. Order Point = L x AVG + Z. STD x L = Lead Time AVG = Average demand
STD = Standard deviation
t = period
Yt = µt.L + Z.Root L .St
µt = average daily demand
St = Standard deviation of daily demand
t = period
Retailer uses moving average technique
P = observations
RWL/LV/PT-17

30. 12 10 8 6 4 2 5 15 20 25 30 Variability P P - is large L - small5 15 20 25 30
Variability P
P is large
L small
Variability - Low
L1 + L2 + L3 = 6 periods
RWL/LV/PT-17

31. Summary of Impact on Promotion Timing
Impact on timing of promotion
Favours promotion during low demand periods.
Favours promotion during peak demand periods.
Favour promotion during low demand periods.
-----”
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Factor
High forward buying
High ability to steal market share
High ability to grow overall market
High margin
Low margin
High holding costs
High costs of changing inventory

33. RWL/LV/PT-17

34. Guidelines for performance Improvement
Maintain inventory at four-month level during current year. Reduce to three months level over the course of next two years.
Establish & maintain a customer service level of 92% product availability for all regular line items & have such items ready for shipment within five days of receipt of order.
Develop procedures to maintain logistics operating expenses at 3.5% of sales during current year.
Reduce transportation expenses, including private fleet, to 2.5% of sales during current year, & reduce them to 2.4% next year.
Reduce freight shipment damage rate to 1% of total sales.
Maintain employee turnover rate at 12% per year.
Achieve and/or exceed overall satisfaction objectives.