lect17 - Inventory Management Multi-Items and Multi-Echelon...

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Chris Caplice ESD.260/15.770/1.260 Logistics Systems Nov 2006 Inventory Management Multi-Items and Multi-Echelon
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© Chris Caplice, MIT 2 MIT Center for Transportation & Logistics – ESD.260 Advanced Topics So far, we have studied single-item single location inventory policies. What about . . . ± Multiple Items ² How do I set aggregate policies? ² What if I have to meet a system wide objective? ± Multiple Locations – Multi-echelon ² Deterministic demand ² Stochastic demand
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© Chris Caplice, MIT 3 MIT Center for Transportation & Logistics – ESD.260 Operational Tactical Strategic Inputs Results Plan Network Design • Transportation costs • Facility fixed and variable costs • Inventory costs • Service levels • Inventory flow •Network configuration •Capacity Deployment •Forecast •Lead times • Variable and inventory costs • Business policies • Item-level flow • Item classifications • Inventory locations • Target Service levels Target Reorder points Target Safety stock Replenishment • Forecasts/Orders • Handling costs • Vendor/volume discounts •How much and when to replenish • Reorder Points Review Periods Reorder Quantities Allocation • Customer orders • On-hand and in-route inventories • Real transit costs •Production schedules •Demand prioritization • Assign inventory to orders Inventory Planning Hierarchy Annual/Quarterly Quarterly/Monthly Weekly/Daily/Hourly Jeff Metersky, Vice President Chainalytics, LLC Rosa Birjandi, Asst. Professor Air Force Institute of Technology
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© Chris Caplice, MIT 4 MIT Center for Transportation & Logistics – ESD.260 Inventory Policies for Multiple Items Aggregate constraints are placed on total inventory ± Avg total inventory cannot exceed a certain budget ($ or Volume) ± Total number of replenishments per unit time must be less than a certain number Inventory as a portfolio of stocks – which ones will yield the highest return? Cost parameters can be treated as management policy variables ± There is no single correct value for holding cost, r. ± Best r results in a system where inventory investment and service level are in agreement with overall strategy. ± Cost per order, A, is also not typically known with any precision. ± Safety factor, k, is set by management. Exchange Curves ± Cycle Stock - Trade-off between total cycle stock and number of replenishments for different A/r values ± Safety Stock – Trade-off between total safety stock and some performance metric for different k values
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© Chris Caplice, MIT 5 MIT Center for Transportation & Logistics – ESD.260 Exchange Curves Set notation for each item: ± A = Order cost common for all items ± r = Carrying cost common for all items ± D i = Demand for item i ± v i = Purchase cost of item i ± Q i = Order quantity for item i Need to find: Total average cycle stock (TACS) and Number of replenishments (N) 11 2 22 1 2 2 i i nn i ii AD v rv Qv TACS ADv A TACS Dv rr == ⎛⎞ ⎜⎟ ⎝⎠ ∑∑ 2 1 2 2 i i i DD N Q AD rv rDv r ND v AA
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© Chris Caplice, MIT 6 MIT Center for Transportation & Logistics – ESD.260
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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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lect17 - Inventory Management Multi-Items and Multi-Echelon...

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