# Optimize monthly inventory level of central warehouse

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```					Global SCM

2008.11.11

Optimize monthly inventory level of central warehouse,
consider previous month demand

Term paper progress
200883471 SONG YUN HO
Optimize monthly inventory level of central warehouse,
Global SCM            consider previous month demand

INTRODUCTION

 Well made inventory plan can be reduce inventory cost

 In the One product inventory model, If each retailer shares one warehouse, It
means that reduce cost more than distributed warehouse

 Optimize inventory level of central warehouse can be change every month or
season

 This study want to decide Optimize monthly inventory level of central warehouse,
consider previous month demand
Optimize monthly inventory level of central warehouse,
Global SCM            consider previous month demand

Problem

Retailer 3
Retailer 2

Plant & Central                Retailer 4
warehouse

Retailer 1

Retailer 5

 Optimize central warehouse inventory level
 Consider previous month demand
Optimize monthly inventory level of central warehouse,
Global SCM                  consider previous month demand

How to decide optimal inventory
level of central warehouse                                      Service level

Safety stock level
Reorder point

Order amount                           Demand during lead time

Maximum capacity of warehouse

Survey inventory level
Stock in                       Stock out

Optimal Inventory level ?

Central warehouse
Optimize monthly inventory level of central warehouse,
Global SCM                 consider previous month demand

Assumption
   Each retailer have safety inventory level during lead time
   Each retailer follows (s,S) policy
   We know previous month demand data
   Plant & warehouse are located at same place

Define Parameter
D = Demand per day
T = Cycle time
C = Maximum capacity
S= Maximum capacity of warehouse
AVGD= average daily demand
Optimize monthly inventory level of central warehouse,
Global SCM                consider previous month demand

Mathematical model
N = Number of retailer
M = Number of day during One cycle
Di = daily demand per r retailer (i ∈ 1, 2, · · 30, r ∈ 1, 2, · · 5)
Ri = retailer (i ∈ 1, 2, · · 5)

Dpmt r= demand during one cycle time per r retailer

Minimize Ri Di 
in    im
Optimize monthly inventory level of central warehouse,
Global SCM                 consider previous month demand

Generate historical data

retailer1    retailer2    retailer3    retailer4    retailer5

Demand                Ran.         Ran.         Ran.         Ran.         Ran.
Between      Between      Between      Between      Between
Per day(D)          (80,170)     (60,120)      (20,90)     (60,140)     (50,120)

Lead time(L)           3            2            1            3            4
C  L  AVGD C  L  AVGD C  L  AVGD C  L  AVGD C  L  AVGD
Cycle time(T)
D            D            D            D            D
Capacity(C)          2000         1500         3000         2000         1500

AVGD= average daily demand
Optimize monthly inventory level of central warehouse,
Global SCM                                                              consider previous month demand

Example
Demand
Day          Retailer1           Retailer2         Retailer3        Retailer4         Retailer5
1                124                106               36               119                91
2                145                 93               60               136               102
3                 96                 75               59                89                97
4                129                 65               83               103               107
5                164                107               56                64                94
6                 97                106               82                84                72
7                101                115               20                91                85
8                123                120               66                61                79         retailer1     retailer2      retailer3   retailer4   retailer5
9                 94                108               33                76               117

D        119.2          95.8            55         89.4        89.6
10                108                115               55               118                77
11                103                119               55               108               115
12                129                105               57                61               120
13                164                 92               45               101               102    L         3              2             1           3           4
14                133                 60               88                84                73
15
16
109
99
112
104
76
46
83
65
60
98
T         16.8          15.7           54.5        22.4        16.7
17                104                 66               27                79                78
18                110                 76               34                74                69   C        2000           1500           3000       2000        1500
19                 88                 67               76                98               114
20                133                 66               61                97                54
21                 99                102               53                68               111
22                117                114               25                66                72
23                122                 98               32                96                89   D = Demand per day, L = lead time,
24                120                119               27                89                86   T = Cycle time, C = Maximum capacity
25                118                115               73                76                73
26                132                 78               88                60                77
27                118                 74               64                86                99
28                141                109               57                99               103
29                 90                101               62               128                79
30                166                 86               55               124                66
avg,                     119.2          95.7667           55.0333          89.4333           88.6333
Optimize monthly inventory level of central warehouse,
Global SCM              consider previous month demand

Further Research
 Define problem more clearly
 Make mathematical model
 Find optimal value by solver
Optimize monthly inventory level of central warehouse,
Global SCM   consider previous month demand

Thank You!!

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