SCM_05_Inventory Risk Pooling_upd.ppt - Inventory Management SCM By Budi Hartono MPM Budi Hartono MPM References • Chopra#7 Chopra#8 Levy#3 NOTES

SCM_05_Inventory Risk Pooling_upd.ppt - Inventory...

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Budi Hartono, MPM Inventory Management Inventory Management & SCM & SCM By: Budi Hartono, MPM
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Budi Hartono, MPM References Chopra #7, Chopra #8, Levy #3 NOTES: “Inventory management” has been intensively covered in the PPIC course. We will not repeat the same material. Students are highly encouraged to re-read the materials. In this course we will discuss parts of the inventory management relevant to the SCM course
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Budi Hartono, MPM Outline Outline Role of Cycle Inventory in a Supply Chain Economies of Scale to Exploit Fixed Costs Economies of Scale to Exploit Quantity Discounts Short-Term Discounting: Trade Promotions Managing Multi-Echelon Cycle Inventory Estimating Cycle Inventory-Related Costs in Practice
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Budi Hartono, MPM Role of Inventory in the Supply Chain Role of Inventory in the Supply Chain Improve Matching of Supply and Demand Improved Forecasting Reduce Material Flow Time Reduce Waiting Time Reduce Buffer Inventory Economies of Scale Supply / Demand Variability Seasonal Variability Cycle Inventory Safety Inventory Seasonal Inventory
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Budi Hartono, MPM Role of Cycle Inventory in a Supply Chain Lot, or batch size: quantity that a supply chain stage either produces or orders at a given time Cycle inventory: average inventory that builds up in the supply chain because a supply chain stage either produces or purchases in lots that are larger than those demanded by the customer Cycle Inventory exists because producing or purchasing in large lots allows a stage of the SC to exploit economic of scale lower cost
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Budi Hartono, MPM Inventory profile: plot of the inventory level over time 2d Q inventory cycle from time flow Average Inventory Time t Q Q = lot or batch size of an order d = demand per unit time 2 Q Inventory Cycle (depends directly on lot size) rate flow Avg inventory Avg time flow Average
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Budi Hartono, MPM Role of Cycle Inventory in a Supply Chain Example: Q = 1000 units d = 100 units/day Cycle inventory = Q/2 = 1000/2 = 500 = Avg inventory level from cycle inventory Avg flow time = Q/2d = 1000/(2)(100) = 5 days Q = lot or batch size of an order d = demand per unit time
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Budi Hartono, MPM Cycle inventory adds 5 days to the time a unit spends in the supply chain Lag time between a product is procured (or produced) and when it is sold From one view, Lower cycle inventory is better because: - Average flow time is lower - Working capital requirements are lower - Lower inventory holding costs
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Budi Hartono, MPM Role of Cycle Inventory in a Supply Chain Cycle inventory is held primarily to take advantage of economies of scale in the supply chain Supply chain costs influenced by lot size: Material cost = C ($/unit) Fixed ordering cost = S (S/order) Holding cost = H ($/unit/year) = hC (H = cost of holding 1 unit in inventory for one period of time)
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Budi Hartono, MPM Primary role of cycle inventory is to allow different stages to purchase product in lot sizes that minimize the sum of material, ordering, and holding costs
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