Managing inventory in SC

Managing inventory in SC

1. Key factor for success

   • Direct impact on service level
   • Decisions must take into consideration the tradeoff between costs and services
     • Impact on COGS
     • Support order fulfillment
   • Ultimate challenge
     • Balance the supply inventory with the demand

2. Inventory accumulation

   • Batching economies or cycle stock
     • Procurement
       • Production
         • Transportation
   • Uncertainty and safety stock
     • Against stock out
   • Time/In transit stock
     • Time period - higher cost
   • WIP stock
   • Seasonal stock
   • Anticipatory stock

3. Inventory costs

   • Inventory carrying cost
     • Capital cost
     • Storage space
     • Inventory service cost
     • Inventory risk cost
   • Ordering cost
     • Fixed
       • information system, facilities, technology
     • Variable
       • reviewing stock levels, preparing purchase order, preparing receiving reports, inspecting stock prior inventory, payments
   • Setup cost
     • Variable: personeel
     • Fixed: equipment
   • Stockout cost
     • Safety stock
       • Cost of lost sales
   • In-transit carrying cost
     • Incoterms
     • Capital cost and insurance

4. Fundamental approach to managing inventory

   • How much and when
     • Fixed order quantities (certainty)
       • Two-bins model
       • Reordering point
       • EOQ Model
     • Fixed order quantities (uncertainty)
       • Safety Stock
       • Several reorder points
       • Demand uncertainty
       • Demand and lead time uncertainty
     • Fixed order interval
     • JIT
     • MRP
       • Raw materials and components inventory
     • DRP
       • Finished goods inventory
     • VMI
       • Inventories outside an organization logistics network

5. Classifying inventory

   • ABC Analysis
     • Criteria depend on the goals of the company
       • Pareto´s law
         • 80/20
   • Quadrant model
     • Value and risk
       • Critical items
       • Distinctives
       • Generics
       • Commodities
   • Inventory at multiple locations
     • Safety stock
       • X2=(X1)SQRT(n2/n1)

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