L3 Inventory Management in Distribution Systems

Question 1

Tradeoff of Centralized Warehouse

Answer 1

• Lower facility cost (EOS)
• Increased average distance between warehouse and customers (increase in response time)
• Lower ss

Question 2

Inbound transportation cost

Answer 2

Costs incurred in transporting material into the facility

Question 3

Outbound transportation cost

Answer 3

Costs incurred in transporting material out of facility

Question 4

Transportation cost and Centralized Warehouse

Answer 4

• Less inbound transportation cost

- More outbound transportation cost

Question 5

Transportation cost and Decentralized Warehouse

Answer 5

• More inbound transportation cost

- Less outbound transportation cost

Question 6

Benefit of centralized system

Answer 6

• When demand in one region is higher than another region, can reallocate items between both markets.
• But when we have positively correlated demand, then not so beneficial

Question 7

Commonality

Answer 7

Using a common component to reduce ss

Question 8

Tradeoffs of Commonality

Answer 8

-Marketing = No product differentiation
-R&D= cheaper, because fewer components need to be developed
= increase, if component needs to be versatile and offer additional capabilities + if product need to be redesigned to match common component

• Production= Cost may increase due to excessive functionality or decrease due to EOS
• Sourcing= Reduced and simplified through smaller supply base but higher supply risk if purchased from single supplier

Commonality reduces safety stock but there are other tradeoffs involving other business functions.

Question 9

Seller driven substitution

Answer 9

Usually involves substituting a higher value product for a lower value product in case of stock out

Question 10

Conditions conducive for substitution

Answer 10

• High demand variability for a component that is stockout
• Small cost difference between components
• Demand not positively correlated

Question 11

Postponement Strategies in Manufacturing

Answer 11

Delay differentiation so that more stages with aggregation and less safety stock

Question 12

Re-sequencing

Answer 12

Modifying order of manufacturing steps to postpone differentiation

Question 13

Ways of aggregating safety stock

Answer 13

• Across locations (Centralized/Decentralized)
• Commonality
• Postponement