Session3-4 - Inventory Management What is inventory?...

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Supply Chain Modeling Session 3-4: Inventory Models Atalay Atasu
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Chapter 2 Inventory Management (from textbook)
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2.1 Introduction Why Is Inventory Important? Distribution and inventory (logistics) costs are quite substantial Total U.S. Manufacturing Inventories ($m): 1992-01-31: $m 808,773 1996-08-31: $m 1,000,774 2006-05-31: $m 1,324,108 Inventory-Sales Ratio (U.S. Manufacturers): 1992-01-01: 1.56 2006-05-01: 1.25
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GM’s production and distribution network 20,000 supplier plants 133 parts plants 31 assembly plants 11,000 dealers Freight transportation costs: $4.1 billion (60% for material shipments) GM inventory valued at $7.4 billion (70%WIP; Rest Finished Vehicles) Decision tool to reduce: combined corporate cost of inventory and transportation. 26% annual cost reduction by adjusting: Shipment sizes (inventory policy) Routes (transportation strategy) Why Is Inventory Important?
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Why Is Inventory Required? Uncertainty in customer demand Shorter product lifecycles More competing products Uncertainty in supplies Quality/Quantity/Costs/Delivery Times Delivery lead times Incentives for larger shipments
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Holding the right amount at the right time is difficult! Dell Computer’s was sharply off in its forecast of demand, resulting in inventory write-downs 1993 stock plunge Liz Claiborne’s higher-than-anticipated excess inventories 1993 unexpected earnings decline, IBM’s ineffective inventory management 1994 shortages in the ThinkPad line Cisco’s declining sales 2001 $ 2.25B excess inventory charge
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Inventory Management-Demand Forecasts Uncertain demand makes demand forecast critical for inventory related decisions: What to order? When to order? How much is the optimal order quantity? Approach includes a set of techniques INVENTORY POLICY!!
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Supply Chain Factors in Inventory Policy Estimation of customer demand Replenishment lead time The number of different products being considered The length of the planning horizon Costs Order cost: Product cost Transportation cost Inventory holding cost, or inventory carrying cost: State taxes, property taxes, and insurance on inventories Maintenance costs Obsolescence cost Opportunity costs Service level requirements
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2.2 Single Stage Inventory Control Single supply chain stage Variety of techniques Economic Lot Size Model Demand Uncertainty Single Period Models Initial Inventory Multiple Order Opportunities Continuous Review Policy Variable Lead Times Periodic Review Policy Service Level Optimization
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2.2.1. Economic Lot Size Model FIGURE 2-3: Inventory level as a function of time
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Assumptions D items per day: Constant demand rate Q items per order: Order quantities are fixed, i.e., each time the warehouse places an order, it is for Q items. K,
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This note was uploaded on 01/25/2011 for the course MGT 4803 taught by Professor Staff during the Spring '08 term at Georgia Tech.

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Session3-4 - Inventory Management What is inventory?...

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