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Inventory-Service Crisis What crisis: inventory imbalance, i.e., some product options having excess inventory while some others have shortages. What caused it: •many product options due to geography, •long DC replenishment lead time, •highly uncertain market, •inflexible design : not easy to rework one option to make it into another, •out of control inventory system, •uncoordinated functional interests (manufacturing, distribution, marketing, engineering )
Curse of Product Variety •High inventory •Poor customer service •High manufacturing cost •High cost of after-sales support •Forecasting nightmare •High obsolescence at end-of-life
•High overhead support Short Term : Rationalize Safety StockInventory control system used: Periodic review, order-up-to system. Key drivers of safety stock: 1.Service target 2.Variability: Std deviation of demand
3. Lead time 3.Review period Safety Stock Example: Europe Option AB Safety stock = Safety factor *Std. Dev of exposure demand √(Lead time + Review Period)*Std. Dev of Demand