MITESD_273JF09_lec05

MITESD_273JF09_lec05 - troduction to Stochastic...

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Unformatted text preview: troduction to Stochastic Introduction to Stochastic ventory Models and Supply Inventory Models and Supply Contracts David Simchi-Levi Professor of Engineering Systems assachusetts Institute of Technology Massachusetts Institute of Technology Outline of the Presentation ± Introduction ± The Effect of Demand Uncertainty ± (s,S) Policy ± Supply Contracts ± Risk Pooling ± ractical Issues in Inventory Practical Issues in Inventory Management ©Copyright 2002 D. Simchi-Levi Sources: Plants vendors ports Regional warehouses: Stocking points Field warehouses: Stocking points Customers, demand centers sinks Transportation costs Transportation costs Inventory & warehousing costs Inventory & warehousing costs Production/purchase costs Supply Image by MIT OpenCourseWare. oals: Goals: Reduce Cost, Improve Service • By effectively managing inventory: – Xerox eliminated $700 million inventory from its supply chain – Wal-Mart became the largest retail company utilizing fficient inventory management efficient inventory management – GM has reduced parts inventory and transportation costs by 26% annually ©Copyright 2002 D. Simchi-Levi oals: Goals: Reduce Cost, Improve Service • By not managing inventory successfully – In 1994, “IBM continues to struggle with shortages in their ThinkPad line” (WSJ, Oct 7, 1994) 1993, “Liz Claiborne said its unexpected earning decline is Liz Claiborne said its unexpected earning decline is In 1993, the consequence of higher than anticipated excess inventory” (WSJ, July 15, 1993) – In 1993, “Dell Computers predicts a loss; Stock plunges. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory write downs” (WSJ, August 1993) ©Copyright 2002 D. Simchi-Levi Understanding Inventory • The inventory policy is affected by: – Demand Characteristics – Lead Time – Number of Products – Objectives • Service level • Minimize costs – Cost Structure ©Copyright 2002 D. Simchi-Levi he Effect of The Effect of Demand Uncertainty • Most companies treat the world as if it were predictable: – Production and inventory planning are based on forecasts of demand made far in advance of the selling season – Companies are aware of demand uncertainty when they create a forecast, but they design their lanning process as if the forecast truly represents planning process as if the forecast truly represents reality ©Copyright 2002 D. Simchi-Levi Demand Forecast • The three principles of all forecasting techniques: – Forecasting is always wrong – The longer the forecast horizon the worst is the forecast – Aggregate forecasts are more accurate ©Copyright 2002 D. Simchi-Levi he Effect of The Effect of Demand Uncertainty • Most companies treat the world as if it were predictable: – Production and inventory planning are based on forecasts of emand made far in advance of the selling season demand made far in advance of the selling season – Companies are aware of demand uncertainty when they...
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MITESD_273JF09_lec05 - troduction to Stochastic...

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