Managing Inventory in the Supply Chain

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Managing Inventory in the Supply Chain by Mind Map: Managing Inventory in the Supply Chain

1. Inventory in the firm: Rationale for inventory

1.1. CPG: Customer packaged gods

1.1.1. Face challenges to keep inventory at desirable levels.

1.2. Managing inventory is a critical factor for success

1.3. Batching economies or cycle stocks

1.3.1. Can arise from 3 sources Procurement Schedule of prices Production Prices are lower when they have longer production runs of the same product Transportation Rate or price discount for shipping larger quantities Purchase and transportation economies are complementary

1.4. Uncertainty and safety stocks

1.4.1. Demand or customer side Demand: obtaining what is needed

1.4.2. Forecasting Assumes the past will repeat itself

1.4.3. Transportation

1.4.4. Tradeoff

1.5. Time/in-Transit and Work-in-Process stocks

1.5.1. An inventory cost is associated with time period

1.5.2. The period should be evaluated in terms of the appropriate tradeoffs

1.5.3. WIP is associated with manufacturing Scheduling techniques

1.6. Seasonal Stocks

1.6.1. Raw materials

1.6.2. Finished products

1.6.3. Challenged when determining how much inventory to accumulate

1.6.4. Can affect transportation Especially with domestic water transportation

1.7. Anticipatory stocks

1.7.1. When an organization anticipates an event

1.8. Summary of inventory accumulation

1.8.1. Most organizations do it

1.8.2. Decisions to do it should be evaluated

1.9. Inventory in other areas

1.9.1. Marketing Identify, create and help satisfy demand for an organization Hold sufficient or extra inventory

1.9.2. Manufacturing Optimized with long productions Result in high inventory levels

1.9.3. Finance Asset and liability Low inventories

2. Inventory costs

2.1. Represent significant component of logistics

2.2. Inventory levels maintained at nodes will affect the level of service provided to customers

2.3. Cost tradeoff decisions frequently depend on impact inventory carrying costs

2.3.1. Incurred by inventory at rest

2.3.2. Capital cost Interest or opportunity cost The one tied up to inventory Largest component

2.3.3. Storage space cost handling costs associated with moving products into and out of inventory Also rent, heating and lightning Relevant to the extent that they increase or decrease along with the inventory

2.3.4. Inventory service cost insurance and taxes

2.3.5. Inventory risk cost inventory dollar value may decline Includes costs associated with obsolesces, damages, pilferage, etc.

2.3.6. Calculating the cost of carrying inventory Determine the value of the item stored in inventory Cost of good sold or direct labor, materials and overhead consumed Plus direct costs of moving the item from manufacturing to distribution Determine the cost of each individual carrying cost component Divide total cost by the value of the item determined in the first step.

2.3.7. Nature of carrying cost Basically same carrying cost use the same estimate of carrying cost per dollar value

2.4. Ordering and set-up cost

2.4.1. Ordering cost Costs for ordering inventory Reviewing inventory stock levels Preparing and processing order Preparing and processing receiving reports checking and inspecting stock prior to placement preparing and processing payment

2.4.2. Set-up cost More obvious than ordering cost Incurred each time the organization modifies a production assembly line to produce a different item for inventory

2.4.3. Nature Separating fixed and variable costs is essential Usually start with cost or charge associated with each individual order or setup

2.4.4. Future perspectives likely to decrease VMI

2.5. Carrying vs. Ordering Costs

2.5.1. Respond in opposite ways

2.6. Expected stockout cost

2.6.1. associated with not having a product available to meet demand

2.6.2. Uncertainty of future consequences safety stock Increases inventory stock Bullet stock Minimize possibility of a stockout

2.6.3. Cost of lost sales

2.7. In-Transit inventory carrying cost

2.7.1. Determining cost Capital cost of carrying inventory in transit generally equals that of carrying inventory to warehouse Storage space cost generally will not be relevant to inventory in transit Need for insurance requires special analysis Obsolescence and deterioration costs are lesser risks for inventory in transit

2.7.2. Costs less

3. Fundamental Approches to managing inventory

3.1. How much to order and when to order

3.2. Product line extensions, new product productions, global markets, higher service requirements and constant pressure to minimize costs

3.3. Basic tradeoff between cost and service

3.4. Key differences among approaches to managing inventory

3.4.1. Dependent vs Independent demand Independent unrelated to demand for other items Requires forecast Dependent directly related to the demand for another inventory item or product.

3.4.2. Pull vs Push Pull approaches customer orders to move product thought a logistics system Respond quickly to sudden or abrupt changed in demand JIT Push uses inventory replenishment techniques in anticipation of demand to move products Run on short-term forecasts

3.4.3. System wide vs Single Facility Solutions System-wIide planda and executes inventory decisions across multiple nodes in the logistics system MRP and DRP Single Facility plans and executes shipments and receipts between a single shipping point and receiving point EOQ and JIT

3.4.4. Principal Approaches and Techniques for Inventory Management Relates to the assumptions the model makes

3.4.5. Fixed Order Quantity Approach (Uncertainty) Ordering fixed amount of product each time reordering takes place Minimum stock level Reorder point Two-bin model Inventory cycles EOQ Model Continuous, constant, and known rate of demand Constant and known replenishment or lead time All demand satisfied Constant price or cost that is independent of the order quantity No inventory transit One item of inventory or no interaction between items Unlimited capital First 3 say that certainty exists