The decision of how much safety stock to hold depends

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The decision of how much safety stock to hold depends on five factors:The variability of demandThe variability of lead timeThe average length of lead timeThe average demandThe desired service levelInventory in the Supply ChainBullwhip Effect ---An extreme change in the supply position upstream in a supply chain generated bya small change in demand downstream in the supply chain. This creates excessive inventory throughout the supply chain.CAUSES:Upstream firms tend to over-react to subtle demand and mix changes.Downstream firms tend to over-react to subtle shipment and delivery disruptions.TO MINIMIZE: Reduce communication and delivery time delays.Inventory Positioning – Deciding where in the supply chain to hold inventory.The cost and value of inventory increases as materials move downstream in the supply chain.The flexibility of inventory decreases as materials move downstream in the supply chain.Geographic Inventory Pooling –Holding safety stock in a single location instead of multiple locations.Postponement –Holding partially assembled components that can be configured in various waysManaging Inventory: Accuracy and Cycle CountingInventory Accuracy: A measure of how closely the actual, physical inventory is reflected in the Inventory Management Systems utilized by the firm. Measured as a Percent. Sometimes material movement or removal is not recordedSometimes materials are misplacedMaterials can be stored in multiple locationsMaterials that are recorded as removed could be returned and replaced without recordCycle Counting: The physical technique of reviewing the actual, physical inventory to update numbers in the Inventory Management System. Situations that often trigger a Cycle Count:Counting when the Inventory Management System indicates a low or 0 inventory.Counting when the Inventory Management System indicates a positive inventory, but a backorder is experienced (when there is an inventory discrepancy).Counting after a pre-specified level of activity.
Counting more often based upon the value of the inventory (high value items physically counted more often). Often as a part of an “ABC” method of inventory management.Inventory Management TechnologyBarcoding:Allows inventory movement to be tracked and recorded in an Inventory ManagementSystem with minimal data entry by an operator.RFID:Successor to the barcode for tracking individual unit of goods. RFID does not require direct line of sight to read a tag and information on the tag is updatable.Inventory in the Supply ChainTransportation, Packaging and Material Handling ConsiderationsThese considerations are often not included in the “holding costs” of inventory.These considerations represent real costs to the organization that can be reduced through continuous improvement and inventory reduction efforts.

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