lecture 8 Flashcards
Three componenets of inventory optimization
Operational costs
customer service
inventory
Product leadership
Changing assortment
Fast supply chain
Many new products
Preventing incidents
Relatively high flexibility
Customer intimacy
Maximum service
High stocks
Wide range
No sales prevented
Relatively high flexibility
Operational excellence
focused range
Minimum stock height
Efficient supply chain
High turnover rate
Relatively low flexibility
Product leadership
Supply chain design
Product range
Focus
Supply chain design
Fast and flexible
Product range
changes continuously
Focus
Avoid residual stocks
E.g. Tesla or apple
Customer intimacy
Supply chain design
Product range
Focus
Supply chain design
Reliable and flexible
Product range
Large
Focus
Maximize service level (higher inventory)
E.g. Nike or albert
Operational excellence
Supply chain design
Product range
Focus
Supply chain design
Efficient
Product range
small
Focus
Minimum stock/ high turnover rate
E.g. action or ikea
ABC in theory
Focus can be applied through an ABC analysis, which categorises the assortment into A, B and C items
Possible criteria for the ABC analysis are
turnover
demand
Margin
Order lines
inventory
Etc.
The boundaries for the ABC division should be set
That means
A = first 70% of turnover
B = Second 20% of turnover
C = last 10% of turnover
Is one criteria enough to give you the right focus?
Some times yes:
E.g. if you want to classify the warehouse and have the fast moving items in the front, a distinction based on sales orders is usually sufficient
And sometimes not:
E.g. Glue at a hardware store
There is a special kind of glue to hang or handle toilet accessories. This glue is very cheap. If you look only based on sales, this glue becomes a C-article, with a higher probability of stock-out in shops. For these types of items, you need to differentiate on sales orders and not just turnover
saftety stock in theory
in order to reduce the risk of a stock-out due to demand uncertainty, safety stock is uesd
Safety stock calculation
Safety stock = Z * sqr((LTavg * omegaD^2) + (omegaLT * Davg)^2
Z = z-value
LT = lead time
omega = standard deviation
D = demand
To attain certain service level
strategic decision:
which items are important –> ABC analysis
Safety stock in practice
In practice often determined by rule of thumb or easy calculation
Food:
Perishability in FMCG
need a max safety stock
Car:
spare parts in automotive sector
need at least 1 item on stock to sell
insurance inventory
retail:
Presentation stock in retail
Location dependent
Need a minimum safety stock to have full shelves
Industry:
Components in manufacturing sector
A higher safety stock for necessary items in production
Economic order quantity in theory (formula)
EOQ = sqr(2*yearly demand * fixed costs for ordering/Purchasing price * cost per product per year %)
Total costs
holding costs + ordering costs
Holding costs
ordering quantity/2 * Purchasing price * costs per product per year %
Ordering costs
yearly demand/order quantity * fixed costs for ordering
Determining the holding costs and order costs is not always easy in practice
Wholesale has often warehouse capacity limitations
Different costs for different product groups
Perishable items in FMCG and pharmaceutical
Upper bound for EOQ
Sustainability in inventory management
Supplier management
suppliers on the other sied of the world or regional suppliers
Boat train truck
Sustainability at the supplier site
Sustainability in inventory management
Preventing emergency orders by optimizing order replenishment
Regular orders by trucks/trains/boats
Emergency orders often by place
Ordering full truckloads FTL instead of less than full truckloads (LTL)
reusluts in less movements
be aware: results are in more inventory
