What SC managers do
- Coordinate the entire production and distribution of a product.
- Manage business relationships with suppliers, ensuring products are
the right quality and price. - Optimize the costs and manager of materials, including inventory.
- Review and update processes across suppliers and the core business
What is a push system, benefits and problems
prod planned in advance and each stages pushes inventory to its downstream neighbor
Benefits:
- efficient and low cost
- consumers usually get products immediately
Problems:
- exposed to inaccurate forecasts
- creates high inventory levels, increasing S H P
pull system, benefits
each unit of the supply chain request inventory to its upstream neighbor
Benefits:
- lower inventory levels, reducing cost and improving quality
- reduces inaccuracy
bullwhip effect
small changes in demand creat bigger and bigger impacts as you move back in SC, caused by big orders batches, high lead time and poor communication
Costs incurred by the bullwhip effect
- excess inventory costs
- lost sales leading to lost revenue
- poor customer services
- excess capacity
- quality costs
how to mitigate the bullwhip
- point of sale demand data
- direct sale to consumers when possible
- reduce lead time
- shipments with orders from multiple retailers to reduce fixed cost
- EDLP
- allocating inv based on past sales instead of orders
mitigation method of sharing information
Sharing the POS data and inventory through SC, Making inventory/ordering decisions based on
the sell-through data instead of sell-in data, all that leads to vendor managed inventory
EOQ model applicable when:
- no significant demand change
- demand forecasted easily
- supply and lead times are known
- inventory can be stored
Why hold inventory?
- demand uncertainty
- supply uncertainty
- process uncertainty
- quantity discount
- price fluctuation
- ordering / setup costs
- anticipation of peak demand
- protecting against stock outs
Difficulties with holding a lot of inv
- Holding cost
- insurance
- timeline
- space limitation
- RIsk
- quality deteriorates
Why is high inventory turnover/ low inventory flow time desirable?
- high turnover means low holding costs
- newer/fresher products
Average aggregate inventory value
avg of the value of all items held in inventory
weeks of supply
avg agg inv/ cogs per week
inventory turns
cogs/avg agg value, if margins are high, that means cogs is low compared to value so turns is low
Eoq model
optimal formula to balance holding and ordering costs
