Inventory management

Inventory management

1. Why is inventory management needed?

   • Delivery lead times
   • Uncertainty and unexpected changed
   • Transportation offering economies of scale
   • uncertainty in quality and quantity of supplier, costs and delivery times

2. Inventory Policy

   • Techniques used to determine how to management inventory
     • Customer demand and variability
     • Amount of different products
     • Replenishment lead time
     • Costs
     • Length of planning horizon
     • Service level requirements

3. Economic lot size model

   • The trade-off between storage costs and ordering
     • Demand has a constant rate
     • Order quantities are fixed
     • Fixed Cost, K, every time an order is placed
     • Lead time between placing an order and receiving is 0
     • Initial inventory is 0
       • Zero inventory ordering property
         • Orders received when the inventory level reaches 0
     • Goal = find the optimal order policy where carrying costs and annual purchasing are minimized
   • Total inventory is insensitive to order quantities
   • Optimal order quantity: inventory setup costs = inventory holding costs
   • Optimal < Average Demand if cost is greater than profit per unit
   • FC no impact on production quantity; only whether to product
   • Risk increases when production increases

4. Cycle time

   • Time in between two successive replenishments

5. Continuous Review

   • inventory reviewed continuously and gets reordered when the reorder point is reached
     • Responsive
     • Demand is random
     • required service level
     • Fixed Cost, K, with every order
     • (Q,R) Policy
     • Reorder level
       • Average inventory during lead time
       • Safety Stock
         • Amount of inventory needed by the distributor to protect against demand deviations during lead time
   • Physical efficiency

6. Inventory position

   • actual warehouse inventory + items ordered - backorders

7. Service levels

   • the higher the service level, the higher the inventory level
   • SL will be higher for products with high volume, high profit margin, short lead time and low variability

8. Risk Pooling

   • aggregating demand across locations lead to a reduction demand variability
   • Lower safety stock levels
   • Reduces average inventory

9. Forecasts

   • Time-series
     • Moving average
     • Exponential smoothing
     • Data with trends
       • Holt's method
       • Regression analysis
     • Seasonal data
       • Winters method
       • Seasonal decomposition
   • Judgement method
     • Sales-force composite
     • Panel of experts
     • Delphi method
   • Causal methods
   • Market Research methods
   • Forecast Techniques during product life cycle
     • Product devleopment phase
       • Market Research
     • Testing and introduction phase
       • Market research + Judgement
     • Growth phase
       • Time-series
     • Maturity phase
       • Time-series or causal methods