Docstoc

Supply Chain and Logistics Management

Document Sample
Supply Chain and Logistics Management Powered By Docstoc
					Supply Chain Logistics Management
• Importance of Inventory to Supply
  Chains
• Consequences of Poor Inventory
  Management




         Supply Chain Logistics Management
•   Inventory Functionality & Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices



           Supply Chain Logistics Management
• Inventory Functionality & Definitions
    – Inventory Functionality
    – Inventory Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices

           Supply Chain Logistics Management
• Inventory Functionality & Definitions
    – Inventory Functionality
    – Inventory Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices

           Supply Chain Logistics Management
• Inventory Functionality & Definitions
    – Inventory Functionality
    – Inventory Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices

           Supply Chain Logistics Management
           Inventory Definitions

•   Inventory Policy
•   Service Level
•   Average Inventory
•   Average Inventory Across Multiple
    Performance Cycles




           Supply Chain Logistics Management
           Inventory Definitions

•   Inventory Policy
•   Service Level
•   Average Inventory
•   Average Inventory Across Multiple
    Performance Cycles




           Supply Chain Logistics Management
           Inventory Definitions

•   Inventory Policy
•   Service Level
•   Average Inventory
•   Average Inventory Across Multiple
    Performance Cycles




           Supply Chain Logistics Management
                 Inventory Definitions:
           Inventory Cycle for Typical Product

  Maximum Inventory
                                        Average Inventory
$70,000                              ½ order quantity ($40,000/2 or
                                   $20,000) + Safety Stock ($30,000) =
                                                $50,000




$30,000

                  Safety Stock ($30,000)


                      1                     2
           Inventory Definitions

•   Inventory Policy
•   Service Level
•   Average Inventory
•   Average Inventory Across Multiple
    Performance Cycles




           Supply Chain Logistics Management
                   Inventory Definitions:
        Inventory Cycle with No Demand Uncertainty
            Order Placed
               for 200
              products   Order Arrives
200                                                    Average
                                                       Inventory = 100




0
                 10         20                                     60
                                                 40
                                   Days
          Reorder Point
      If sales occur at the rate of 10 products/day, it takes 20
                      days to sell 200 products
                 Inventory Definitions:
      Inventory Cycle with No Demand Uncertainty
         Order Placed Order Order Placed
            for 200            for 200
200
           products   Arrives products           Average
                                                 Inventory = 100




0
             10        20          30                        60
                                            40
       Reorder Point        Reorder Point
                 Inventory Definitions:
      More Frequent Orders, Smaller Order Quantity

Order Placed   Order
   for 100
  products     Arrives


100                                                                Average
                                                                   Inventory
                                                                   50 products
 0
                10          20           30            40          50

        Reorder Point Reorder Point Reorder Point Reorder Point Reorder Point
                 Inventory Definitions:
      Less Frequent Orders, Larger Order Quantity

600                     Order                    Order Placed
                        Arrives
                                                    for 600
                                                   products

               Order Placed
                  for 600                           Average
                 products                           Inventory = 300




                                       40
0
         20        40             60        80    100           120
•   Inventory Functionality & Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices



           Supply Chain Logistics Management
        Inventory Carrying Costs

•   Capital
•   Taxes
•   Insurance
•   Obsolescence
•   Storage




           Supply Chain Logistics Management
• Inventory Functionality & Definitions
• Inventory Carrying Cost
• Planning Inventory
  – When to Order
  – How Much to Order
• Managing Uncertainty
• Inventory Management Policies &
  Practices

         Supply Chain Logistics Management
• Inventory Functionality & Definitions
• Inventory Carrying Cost
• Planning Inventory
  – When to Order
  – How Much to Order
• Managing Uncertainty
• Inventory Management Policies &
  Practices

         Supply Chain Logistics Management
                 When to Order
          When There is No Demand Uncertainty

              Reorder Point Formula

                      R=DXT
R = Reorder Point in Units (of product)
D = Average Daily Demand in Units (of product)
T =Average Performance Cycle in Days (i.e., order cycle
  time, or the number of days between placing an order
  and receiving the order)

             Supply Chain Logistics Management
                   When to Order
           When There is No Demand Uncertainty

               Reorder Point Formula
R= DXT
       D = 20 products/day
       T = 10 days (time between
       placing order and receiving order)
R = 20 X 10
Reorder Point = 200 products
That is, an order is initiated whenever there are 200
products left in inventory

              Supply Chain Logistics Management
                   When to Order
                When Demand is Uncertain


R = D X T + SS
       D = 20 products/day
       T = 10 days (time between placing order and
       receiving order)
       SS = 100 products
R = 20 X 10 + 100
Reorder Point = 300 products
That is, an order is initiated whenever there are 300
products left in inventory

              Supply Chain Logistics Management
• Inventory Functionality & Definitions
• Inventory Carrying Cost
• Planning Inventory
  – When to Order
  – How Much to Order
• Managing Uncertainty
• Inventory Management Policies &
  Practices

         Supply Chain Logistics Management
                    Order Placed for Order Placed for Order Placed for Order Placed for
                     100 products     100 products     100 products     100 products
 Order Placed for
  100 products            Order           Order           Order          Order
                          Arrives         Arrives         Arrives        Arrives

  100                                                                                     Average
                                                                                          Inventory
                                                                                          50 products
   0
                     10              20              30                  40               50

Reorder Point Reorder PointReorder Point Reorder Point              Reorder Point Reorder Point
        Order Placed Order Order Placed
           for 200            for 200
200
          products   Arrives products           Average
                                                Inventory = 100




0
            10        20          30                        60
                                           40
      Reorder Point        Reorder Point
600                 Order                    Order Placed
                    Arrives
                                                for 600
                                               products

           Order Placed
              for 600                           Average
             products                           Inventory = 300




                                   40
0
      20       40             60        80    100           120
                      Economic Order Quantity

                                               Total Inventory Costs
Costs in Dollars




                   Economic Order Quantity
                   Ordering Cost = Carrying Cost
                                                               Inventory Ordering Costs




                                                                 Inventory Carrying Costs




             0            Number of Orders Placed Per Year

                          Supply Chain Logistics Management
             How Much to Order
         Economic Order Quantity (EOQ)

EOQ = Economic Order Quantity
Co = Cost per Order (Ordering Cost)
Ci = Annual Inventory Carrying Cost %
D = Annual Product Sales (in units)
U = Cost per Product
                               2Co D
               EOQ =
                                Ci U


            Supply Chain Logistics Management
             How Much to Order
         Economic Order Quantity (EOQ)

EOQ = Economic Order Quantity
Co = $19.00 (ordering cost)
Ci = 20% (annual carrying cost %)
D = 2400 (annual number of products sold_
U = $5.00 (cost of each product)
                                 2 * $19.00 * 2400
                EOQ =
                                 20% * $5.00


             Supply Chain Logistics Management
             How Much to Order
         Economic Order Quantity (EOQ)

EOQ = Economic Order Quantity
Co = $19.00 (ordering cost)
Ci = 20% (annual carrying cost %)
D = 2400 (annual number of products sold)
U = $5.00 (cost of each product)

                                2 * $19.00 * 2400
302 rounded to 300 =
                                20% * $5.00

            Supply Chain Logistics Management
      Ordering Costs Per Year = 8 (# of orders per year) * $19.00 or $152.00
                        Average inventory is 150 products
       Inventory Carrying Costs Per Year = 150 * $5.00 * 20% or $150.00


                                        Order
              Order Placed                      Order Placed
                 for 300                Arrives
                                                   for 300
300             products                          products

                                                                  Average
200
                                                                  Inventory = 150




 0
                    10         20          30            40          50        60
          Reorder Point                          Reorder Point
                 How Much to Order
             Considering Transportation Rates

            Order Quantity = 300 products per order
       Number of orders placed per year = 2400/300 or 8
      Ordering Cost per year = 8 orders * $19.00 = $152.00
Inventory Carrying Costs per year = 150 * $5.00 * 20% = $150.00
      Transportation Costs (per year) for Small Shipments:
   $1.00 (per product) * 2400 (products purchased per year) =
                            $2400.00
   TOTAL COSTS = $150.00 + $152.00 + $2400.00 = $2702.00



                Supply Chain Logistics Management
                  How Much to Order
             Considering Transportation Rates

            Order Quantity = 480 products per order
       Number of orders placed per year = 2400/480 or 5
       Ordering Cost per year = 5 orders * $19.00 = $95.00
Inventory Carrying Costs per year = 240 * $5.00 * 20% = $240.00
      Transportation Costs (per year) for Large Shipments:
   $0.75 (per product) * 2400 (products purchased per year) =
                            $1800.00
    TOTAL COSTS = $95.00 + $240.00 + $1800.00 = $2135.00



                Supply Chain Logistics Management
     How Much to Order
 Considering Transportation Rates

 TOTAL COSTS (480 product order size)
$95.00 + $240.00 + $1800.00 = $2135.00


 TOTAL COSTS (300 product order size)
$150.00 + $152.00 + $2400.00 = $2702.00




    Supply Chain Logistics Management
                 How Much to Order
  Considering Transportation Rates & Price/Quantity Discounts

            Order Quantity = 300 products per order
       Number of orders placed per year = 2400/300 or 8
      Ordering Cost per year = 8 orders * $19.00 = $152.00
Inventory Carrying Costs per year = 150 * $4.00 * 20% = $120.00
      Transportation Costs (per year) for Small Shipments:
   $1.00 (per product) * 2400 (products purchased per year) =
                            $2400.00
        Product Cost per year = 2400 * $4.00 = $9600.00
  TOTAL COSTS = $120.00 + $152.00 + $2400.00 + $9600.00 =
                       $12,272.00

                Supply Chain Logistics Management
                  How Much to Order
  Considering Transportation Rates & Price/Quantity Discounts

            Order Quantity = 480 products per order
       Number of orders placed per year = 2400/480 or 5
       Ordering Cost per year = 5 orders * $19.00 = $95.00
Inventory Carrying Costs per year = 240 * $3.00 * 20% = $144.00
      Transportation Costs (per year) for Large Shipments:
   $0.75 (per product) * 2400 (products purchased per year) =
                            $1800.00
        Product Cost per year = 2400 * $3.00 = $7200.00
   TOTAL COSTS = $95.00 + $144.00 + $1800.00 + $7200.00 =
                         $9239.00

                Supply Chain Logistics Management
               How Much to Order
Considering Transportation Rates & Price-Quantity Discounts

          TOTAL COSTS (480 product order size)
    $95.00 + $144.00 + $1800.00 + $7200.00 = $9239.00


          TOTAL COSTS (300 product order size)
   $152.00 + $120.00 + $2400.00 + $9600.00= $12,272.00




             Supply Chain Logistics Management
•   Inventory Functionality & Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices



            Supply Chain Logistics Management
•   Inventory Functionality & Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
    – Demand uncertainty
    – Performance cycle uncertainty
• Inventory Management Policies &
  Practices

            Supply Chain Logistics Management
     Demand Uncertainty

50
                                         Forecast
                                         Demand


                                               Actual
                                               Demand




0

     Supply Chain Logistics Management
           28 Day Historical Sales
            Average Sales = 5 products


Daily Demand                     Frequency
(# of products)          (# of days demand occurs)
      0                                1
      1                                2
      2                                2
      3                                3
      4                                4
      5                                5
      6                                3
      7                                3
      8                                2
      9                                2
      10                               1


            Supply Chain Logistics Management
                 Frequency Distribution of Historical Sales

                  6

                  5
Number of Days




                  4
                  3

                  2
                  1

                  0
                      0   1   2    3    4       5     6   7   8   9   10
                                            Daily Sales

                              Supply Chain Logistics Management
                 Frequency Distribution of Historical Sales

                  6

                  5
Number of Days




                  4
                  3

                  2
                  1

                  0
                      0   1   2    3    4       5     6   7   8   9   10
                                            Daily Sales

                              Supply Chain Logistics Management
Frequency Distribution of Historical Sales


                                             68%



                                                         95%



                                                                  >99%


                    Average daily sales = 5 products
   -- 3 sd   --2 sd   --1 sd             +1 sd    +2sd         +3sd

               Supply Chain Logistics Management
Frequency Distribution of Historical Sales

                                       68%



                                                 95%



                                                           >99%


                     5 products 8 products 11 products 14 products
                             SS=3 products SS=6 products SS=11 products
          Supply Chain Logistics Management
•   Inventory Functionality & Definitions
•   Inventory Carrying Cost
•   Planning Inventory
•   Managing Uncertainty
•   Inventory Management Policies &
    Practices



           Supply Chain Logistics Management
Inventory Management Policies & Practices

 •   Inventory Control
 •   Planning Methods
 •   Collaborative Inventory Replenishment
 •   Product/Market Classification




            Supply Chain Logistics Management
Inventory Management Policies & Practices

 •   Inventory Control
 •   Planning Methods
 •   Collaborative Inventory Replenishment
 •   Product/Market Classification




            Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
   – Perpetual Review
   – Periodic Review
 • Planning Methods
 • Collaborative Inventory Replenishment
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
   – Perpetual Review
   – Periodic Review
 • Planning Methods
 • Collaborative Inventory Replenishment
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
   – Perpetual Review
   – Periodic Review
 • Planning Methods
 • Collaborative Inventory Replenishment
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 •   Inventory Control
 •   Planning Methods
 •   Collaborative Inventory Replenishment
 •   Product/Market Classification




            Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
   – Fair Share Allocation
   – Requirements Planning (MRP & DRP)
 • Collaborative Inventory Replenishment
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
   – Fair Share Allocation
   – Requirements Planning (MRP & DRP)
 • Collaborative Inventory Replenishment
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
   – Fair Share Allocation
   – Requirements Planning
      • Materials Requirements Planning (MRP)
      • Distribution Requirements Planning (DRP)
 • Collaborative Inventory Replenishment
 • Product/Market Classification

           Supply Chain Logistics Management
              MRP/DRP System Design
                  Supplier A          Supplier B          Supplier C

                           Raw Materials, Component Parts
MRP




         Work in Process       Work in Process     Work in Process     Work in Process


                            Assembly/Manufacturing Operation



                           Manufacturing Plant Warehouse
DRP




      Regional Warehouse                                  Regional Warehouse


                                     Retailers


                  Supply Chain Logistics Management
Inventory Management Policies & Practices

 •   Inventory Control
 •   Planning Methods
 •   Collaborative Inventory Replenishment
 •   Product/Market Classification




            Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
 • Collaborative Inventory Replenishment
   – Quick Response (QR)
   – Vendor Managed Inventory (VMI)
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
 • Collaborative Inventory Replenishment
   – Quick Response (QR)
   – Vendor Managed Inventory (VMI)
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 • Inventory Control
 • Planning Methods
 • Collaborative Inventory Replenishment
   – Quick Response (QR)
   – Vendor Managed Inventory (VMI)
 • Product/Market Classification



          Supply Chain Logistics Management
Inventory Management Policies & Practices

 •   Inventory Control
 •   Reactive Methods
 •   Planning Methods
 •   Collaborative Inventory Replenishment
 •   Product/Market Classification (ABC)




            Supply Chain Logistics Management
              ABC Classification

Product   Annual      % of        % of             ABC
 (SKU)     Sales      Total      Total         Classification
           (000)      Sales     Products
 5548     $94,000       47          47               A
 4487     $64,000       32          79               A
 6664     $30,000       15          94               A
 6688      $6,000        3          97               B
 0888      $2,000        1          98               B
 8898      $1,600       0.8        98.8              C
 5444       $800        0.4        99.2              C
 8933       $800        0.4        99.6              C
 8911       $600        0.3        99.9              C
 3400       $200        0.1        100               C

           Supply Chain Logistics Management

				
DOCUMENT INFO
Description: Supply Chain and Logistics Management document sample