lecture9_SupplyChain_InventoryUncertainty

lecture9_SupplyChain_InventoryUncertainty - ESI 6323...

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ESI 6323 Managing Uncertainty in the Supply Chain: Safety Inventory
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1 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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2 Outline The role of safety inventory in a supply chain Determining the appropriate level of safety inventory Impact of supply uncertainty on safety inventory Impact of aggregation on safety inventory Impact of replenishment policies on safety inventory
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3 The Role of Safety Inventory in a Supply Chain Forecasts are rarely completely accurate If average demand is 1000 units per week, then half the time actual demand will be greater than 1000, and half the time actual demand will be less than 1000; what happens when actual demand is greater than 1000? If you kept only enough inventory in stock to satisfy average demand, half the time you would run out Safety inventory: Inventory carried for the purpose of satisfying demand that exceeds the amount forecasted in a given period
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4 Role of Safety Inventory Average inventory is therefore cycle inventory plus safety inventory There is a fundamental tradeoff: Raising the level of safety inventory provides higher levels of product availability and customer service Raising the level of safety inventory also raises the level of average inventory and therefore increases holding costs · Very important in high-tech or other industries where obsolescence is a significant risk (where the value of inventory, such as PCs, can drop in value) · Compaq and Dell in PCs
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5 Two Questions to Answer in Planning Safety Inventory What is the appropriate level of safety inventory to carry? What actions can be taken to improve product availability while reducing safety inventory?
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6 Determining the Appropriate Level of Safety Inventory Measuring demand uncertainty Measuring product availability Replenishment policies Evaluating cycle service level and fill rate Evaluating safety level given desired cycle service level or fill rate Impact of required product availability and uncertainty on safety inventory
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Determining the Appropriate Level of Demand Uncertainty Appropriate level of safety inventory determined by: supply or demand uncertainty desired level of product availability Higher levels of uncertainty require higher levels of safety inventory given a particular desired level of product availability Higher levels of desired product availability require higher
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lecture9_SupplyChain_InventoryUncertainty - ESI 6323...

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