Inventory: Decision Making

Inventory: Decision Making

1. Fundamental Approaches to Managing Inventory (MI)

   • How and when order?
     • Key differences among Approaches to MI
       • 1
         • Dependent Demand
         • Independent Demand
       • 2
         • Pull
           • Relies on customer demand to pull products
             • Reactive
         • Push
           • Anticipate future demand
             • Proactive
       • 3
         • Systemwide
           • Time and expenses of developing a truly comprehesive solution
             • Applicable to
               • MRP and DRP
         • Single-Facility Solution
           • Less expensive and more straighforward in development terms
             • Apllicable to
               • JIT and EOQ
     • Principal Approaches and Techniques for Inventory Management
       • Attemp to synchronize flows of products and information to be consistent eith end-user ar customer needs

2. Fixed Order Qauntity Approach

   • Condition Of Certainity
     • The order depends upon the product´s cost and demand
       • Inventory Cycle
         • Full inventory - the inventory decrease to the reorder point - make the order - sold out - the inventory is full again
       • Simple EOQ Model
         • Principal Assumptions
           • 1. A continuos, constant and known demand rate. 2. A constant and known replenishment or lead time 3. The satisfaction of all demand 4. A constant price or costo 5 . No inventory in transit 6. One item of inventory 7. Infinite planning horizon 8. No limit on capital availability
       • Reorder Point
         • Depends on
           • Inventory Level
             • It is Important to
               • Know how much and when to order
         • Replenishment time
           • Consists in
             • Order trandmittal, order processing, order preparation and delivery
       • Min-Max Approach
         • Applies when
           • the demand may be larger and the amount on hond may fall below the reorder point
             • Increments
               • The amount ordered
                 • by
                   • the differences between the reorder point and the amount on hand
   • Condition of Uncertainity
     • The sales are somewhat sporadically
       • Use safety stock
       • Reorder Point
         • Is the inventory level sufficient to satisfy demand untul the order arrives.
       • Uncertainity of Demand (UD)
         • Dealing with one cuse is easiest
           • Most common factor
             • Sales Rate or Usage rate
       • UD and lead Time Length
         • Both are vary
           • Is more complex
             • To process is
               • 1. calculate values for the mean
               • 2. Calculate the standard deviation of demand during lead time
               • 3. Describe the stockout probability for each particular reorder point

3. Fixed Order Interval Approach

   • Fixed period or Fixed Review period
   • Involves
     • Ordering inventory at fixed or regular intervals
     • Pull and Pushh philosophies

4. Additional Approaches to MI

   • The Just-inTime Approach
     • The inventory should be available when the firm need it, not earlier or after
   • Material Requirements Planning
     • Is a
       • Set of logically related procedures, decision rules and records designed to translate a master production schedule into time-phase net inventory
   • Distribution Resource Planning
     • The most used
     • Help to
       • determine the appropiate level of inventory
         • -
           • Reduce Transportation Cost
           • Reduce Overall level of dinished goods inventories
           • Decrease stockout situation
         • +
           • Improve Customer Service
           • Improve distribution center operation

5. Inventory At Multiple Locations - The Square Root Law

   • Help to
     • Determine the extent to which inventories may be reduced through such a strategy
   • Assume that total customer demand remains the same

6. A Special Note on Inventory for Outbound Systems

   • Management Inventory
     • Whether
       • In motion
       • At Rest
     • Is the "glue" for the individual logistics system

7. Demand Pull Approaches to MI

   • Example
     • A company wanted to improve customer service metrics
       • They could crry higher levels of inventory to improve order fill rates.

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