講 師 : 周 世 玉 Shihyu Chou

Transcription

1 講 師 : 周 世 玉 Shihyu Chou

2 Logistics involves the following activities: sourcing and purchasing inputs, managing inventory, maintaining warehouses, and arranging transportation and delivery. There are three key flows within supply chains: Flows of materials Flows of information Flows of involving i resources such as people, equipment, logistics partners and financial flows. Note: Logistics involves getting, in the right i way, the right product, in the right quantity and right quality, in the right i place at the right i time, for the right i customer at the right cost (8Rs)

3 Learning objectiveses Explain the significance of inventory in logistics and SCM Introduce the costs involved in inventory management Introduce common inventory control systems designed to reduce costs Identify inventory reduction strategies including just-in-time inventory management in a global supply chain

4 The importance of inventory management Inventory any material that a firm holds in order to satisfy customer demand d (and these customers may be internal and / or external to the firm) Inventory costs money! It ties up working capital and affects cash flow Inventory takes up space Firms need to hire people to take care of inventory The goal in inventory management is to minimize inventory holding while maintaining a desired customer service level.

5 In transit Manufacturer raw materials Supplier finished goods Manufacturer work in progress Manufacturer finished goods Distributor warehouse consumers Inventory Along The Supply Chain

6 Inventory turnover A concept used to measure a firm s performance in inventory management inventory turnover = Value of Cost of all goods sold in a year average inventory held throughout the year Most firms achieve an inventory turnover of about 10, while well-performing firms can achieve a turnover of 50 or more See example on next slide

7 The Yang s company manufactures Crystal TVs. In 2010, the total costs of TVs they sold was $ The average holding cost for the year was $ At the end of year 2010, the company implemented just-in-time principles to improve its inventory performance. In 2011, their sales increased and the cost of TVs was $450000,while the average inventory holding cost was $ Has the performance improved? Turnover (2010) = / 25000=12 times Turnover (2011) = / 30000=15 times Yes, the performance has improved!

8 Reasons for holding inventory Buffer against uncertainty Economic trade-offs Maintain customer service levels for volatile demand Hedges against price and exchange rate fluctuations Protects against delivery lead-time variability Production batch size Transportation batch size Transportation mode Buffer against unreliable supply sources Order quantity size Buffer against seasonal demand and supply Maintain supply of scare supply Provide cover for emergencies Order frequency duration Bulk purchase savings Supply price fluctuations

9 The economic order quantity (EOQ) model Notation: D:Annual use of a particular item, in number of units per year S:Order-processing cost, in $/order P:Price per item, in $/unit H:Holding cost per unit per year, in $/unit/year Q:Number of items ordered in one purchase order, in units T:Time periods between purchase orders in fraction of a year SS: Safety Stock, in units L: Lead time, in fraction of a year I: Current inventory on hand, units TAC:Total annual cost

10 Purchase cos t = p D Average inventory = ( SS + Q + SS ) / 2 = ss + Q / 2 annual holding cost = ( SS + Q / 2) H Annual order processing cost = ( D / Q) S total annual cost (TAC) = p D + ( SS + Q / 2) H + ( D / Q) S EOQ = 2DS H Why? See Example on the following slide

11 Steady drop in inventory level Inventory level Arrival of an order Reorder point Order quantity, Q Lead time time How inventory build up and deplete Safety Stock, SS

12 Purchase cost = p D Average inventory = ( SS + Q + SS) / 2 = ss + Q / 2 annual holding cost = ( SS + Q / 2) H Annual order processing cost = ( D / Q) S total annual cost (TAC) = p D + ( SS + Q / 2) H + ( D / Q) S EOQ = 2DS H Why? See Example on the following slide

13 The Dragon department t store sells fashion clothing. The forecasted annual demand for a premium leather coat is The orderprocessing cost per order is $50, and inventory holding cost is $100 per coat per year. How many coats should the store order each time to attain minimal i annual total t inventory cost? EOQ = 2DS H = =

14 Steady drop in inventory level Inventory level Arrival of an order Reorder point Order quantity, Q time Lead time How inventory build up and deplete Safety Stock, SS

15 Total Annual Cost (TAC) Least TAC Best Q Q Order quantity vs total annual cost

16 Inventory Control Systems Reorder point inventory control system Inventory levels are continuously monitored, and orders are issued when the inventory is depleted to a predetermined level, called the reorder point (ROP) ROP = D * L + SS Example See the following slide

17 The Dragon department store wants to use a reorder point system. It has the order quantity set at 49 (EOQ). Taking uncertainties in delivery and in demand into account, they want to hold three weeks of demand as safety stock. What should their reorder point be if the delivery lead time is two weeks? annual demand = 2400, 3 safety stock to cov er 3 weeks = ROP = D L + SS =

18 The periodic inventory control system Orders are reviewed periodically (not continuously as in the reorder point system), after the passage of a fixed time period (T) T = EOQ / D (T can also be determined by taking other factors into account) M = D ( L + T ) + Q = M I SS

19 Q=M-I Target maximum level (M) Inventory level I L T Time of review Periodic system L T L Time

20 The periodic inventory control system Orders are reviewed periodically (not continuously as in the reorder point system), after the passage of a fixed time period (T) T = EOQ / D (T can also be determined by taking other factors into account) M = D ( L + T ) + Q = M I SS

21 Design a periodic inventory system for The Dragon Department t Store if it wishes to hold 5 weeks of demand as safety stock. If on a day of review, the inventory of the premium coat is 204, how many coats should be ordered? d? T = EOQ / D = 49 / 2400 = years = 8 days M = D( L + T ) + SS = 2400 (2 / / 365 ) (5 / 52 ) 376 Q = M I = = 172

22 Safety stock -1 This is the amount of inventory stocked by the system to allow for unforeseen events. Late deliveries Inventory use is higher than that forecast Providing a safeguard against issues such as poor quality, production problems, transportation problems, etc. Sometimes referred to as buffer stock

23 Safety stock -2 The root reason for safety stock could be described as variation variation of demand, variation of lead time, variation of production, etc. If there was no variation, firms would not need safety stock. Safety stock needs to be held in proportion to such variations. Safety stock is not free. The cost is SS H.

24 Supply Chain Inventory Management Traditionally in a supply chain, inventory managers in individual id firms along the supply chain make their own inventory decisions. Each firm or location holds its own safety stock.

25 Inventory centralization strategy If all the inventory in different firms can be centralized at a location (for example, at the manufacturer s location), this particular location needs to consider the total demand for all different firms, but the variation of the total demand will be less than the total variation of the demand considered separately.

26 The square root rule An approximation The inventory buffer required is proportional to the square root of the number of locations For example, if we can consolidate inventories of nine retailers into a distribution center, then the safety stock needed at this DC is roughly 1/3 of the sum of the safety stocks of the nine retailers.

27 Inventory reduction strategies Delayed product differentiation: reducing variation i by combining demand at different points is the case of a manufacturer making multiple products Part commonality: attempts simply to reduce the number of different parts in a product range wherever possible Transit inventory reduction Reduce lead time: cheaper transport modes may be slower Annual transit inventory cost = Q L H (D/Q)=D L H Warehouse reduction Mobile warehouses The gearbox approach (we can change the transport modes to do so)

28 Product 1 Product 2 A B C D Product 1 Product 2 X B X D common parts across products

29 Matching Inventory Policy with Inventory Type ABC analysis Too many SKUS! (stock keeping unit) ABC analysis identifies the most important items so that more attentions can be focused on these items The idea is that out of so many items a manager needs to take care, there are only a few that account for most of the inventory expenses

30 Inv ventory Catego ory A B C A: 20% of SKUs B: 30% of SKUs C: 50% of SKUs 10% 20% 30% 40% 50% 60% 70% Percentage of total annual expenses ABC Classification Approach

31 Inventory reduction principles Pool inventory: Wherever demand for inventory can be combined, the safety stock can be lowered, still providing the same service level Reduce variation: Wherever variation (demand, supply, quality etc.) can be reduced, safety stock can also be reduced Reduce lead time: When the lead time is long, we need to forecast more into the future, thus the accuracy of the forecast suffers, increasing the variability of demand and hence requiring higher safety stock

32 Just-in-time inventory system (JIT): making do with the minimum possible level of inventory holding Inventory hides problems! By purposely removing inventory holdings, the problems the inventory was covering are surfaced, and the problems are then proactively fixed Small lot production Ordering in small quantities keeps the average inventory level l small Hence reduce order processing costs so that the ideal of small quantity ordering can be accomplished The time and effort spent in process setups are the manufacturing equivalent of order processing costs Hence, reduce the time and effort in setups