lect16 - Inventory Management & Optimization in Practice...

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1 Inventory Management & Optimization in Practice Lecture 16 ESD.260 – Logistics Systems Fall 2006 Edgar E. Blanco, Ph.D. Research Associate MIT Center for Transportation & Logistics
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© Edgar E. Blanco, MIT 2 Session goals z The challenges of inventory management in practice z Approaches z The supply chain dimension z Role of technology
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© Edgar E. Blanco, MIT 3 Why do companies hold inventory in the first place? z It’s a buffer in the Supply Chain z Time mismatch between supply-demand z Variability (supply, demand, forecast error) z Economic (costs, discounts) z Main tradeoff z Service level z Inventory cost z Keep it to a minimum
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© Edgar E. Blanco, MIT 4 The fundamental tradeoff Inventory Investment Target Service Levels
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© Edgar E. Blanco, MIT 5 Three simple questions … Three basic questions you want to answer through inventory management: 1. How often should I check my inventory? 2. How do I know if I should order more? 3. How much to order?
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© Edgar E. Blanco, MIT 6 What you have learned so far… z Not all items are created equal z Segmentation is needed z Various models with different assumptions z EOQ z (s, Q) z (s, S) z (R, s, S) z (R, S) z Periodic vs. Continuous z Definitions of service level matters
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© Edgar E. Blanco, MIT 7 Reality check … “More than 60% of companies use overly simplistic inventory management methods. These companies frequently have 15-30% more inventory than they need and lower service levels. By contrast, companies that reported using new optimization methods…, commonly drove 20-30% reductions in on-hand inventory and 10-20% improvements in time to market.” Aberdeen Group, March 2005
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© Edgar E. Blanco, MIT 8 z Good news z Understanding theoretical models is important and matters z You can make money on this field! z
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This note was uploaded on 12/06/2011 for the course ESD 1.260j taught by Professor Chriscapliceesd during the Fall '06 term at MIT.

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lect16 - Inventory Management & Optimization in Practice...

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