Supply Chain Inventory Management Chapter 15 Supply Chain Inventory Management The Traditional Inventory Chain 16 The Traditional Inventory Chain Best Practice in Inventory Management Dr Tony Wild
Figure 15.1 Inventory Location Options Stock in a single central warehouse Stock held in many local stores Minimum investment in stock Items available rapidly for customers Accurate forecasting Sensitive to local conditions Higher demand rate Duplication of stockholding Reduced safety stocks Poorer control Low warehousing costs Higher inventory investment Better formal physical control Greater risk of obsolescence. Accurate integrated system required Higher operating costs High distribution cost to end customer Low distribution cost to end customer Low transport cost to central warehouse High total transfer costs to local stores Best Practice in Inventory Management Dr Tony Wild
Annual Demand Unit Cost Figure 15.2 9 Box Model aC bC cC aB bB cB aA Low Fast Movers Medium Value High Sl aC bC cC ow aB bB cB o w Slow aA bA cA Use logarithmic scales Annual Demand Unit Cost Best Practice in Inventory Management Dr Tony Wild
Figure 15.3 9 Box Structure for Supply Unit Cost Annual Demand Hold Stock at End user interface Make to order Small stock held Centrally Central or distributed stockholding Daily replenishment to POS All time overbuy distribute as required Stock at distribution Centre Offer on lead time Maintain small POS stock POS = point of sale to end user Best Practice in Inventory Management Dr Tony Wild
Annual Demand Unit Cost Challenges Major effect on availability Easy to forecast Availability and sourcing problem Annual Demand Inventory value problem Difficult to forecast Minor effect on availability per line Unit Cost Best Practice in Inventory Management Dr Tony Wild
Patchy 100%or make to order Wait lead time - Make to order Figure 15.4 Availability Structure 99½% at user interface 99½% with user 95% at user interface “99% stock & fast supply 97% from Supply chain 99% from Supply chain 95% from Supply chain Annual Demand Patchy 100%or make to order 85% from Central Stock Wait lead time - Make to order Unit Cost Best Practice in Inventory Management Dr Tony Wild
Figure 15.5 Central and Local Management of Inventory Central Management Advantages Sensitivity to local conditions Good usage statistics Customer knowledge High level of control Local commitment Centre of excellence Responsible for Success Allocate stock to greatest need Pragmatic Commercial Arrangements Professional inventory expertise Disadvantages No overall view of inventory Lack of local knowledge Expertise required at each location Remote from customer problems Potential for hoarding Highly effective systems required Different local policy implementation Risk of incorrect local information Requires inventory control specialists Best Practice in Inventory Management Dr Tony Wild
Conventional Stockholding Supplier On site Stores Figure 15.6 Supply Inventory Options On Site Material Inventory Options Conventional Stockholding Customer owns Customer Manages VMI Supplier Manages Consignment Stock Supplier owns Supplier On site Stores Customer Who Owns the Inventory Supplier Customer Supplier Who Manages the Inventory Dr Tony Wild Best Practice in Inventory Management
Figure 15.7 DRP Stock and forecast demand Demand Demand Supply Demand Safety Current Week 5 Location Activity Week 1 Week 2 Week 3 Week 4 Week 6 Week 7 Stock Stock Demand 50 45 60 20 50 60 45 North stores 20 75 Requirement 40 60 20 50 60 45 Demand 20 30 50 20 30 15 West stores 12 15 Requirement 17 30 50 20 30 15 Supply 1 week lead time north & west 17 70 60 70 70 90 60 Demand 100 140 60 110 150 140 135 South stores 46 300 Requirement 46 110 150 140 135 Supply 2 weeks lead time south stores 46 110 150 140 135 Total Demand from Stores 17 116 170 220 210 225 Central Supply Warehouse Stock 37 190 74 284 64 234 389 Warehouse Deliveries planned from supplier 380 380 380 Note: Safety stock is a calculation used to trigger replenishment not a physical stock Best Practice in Inventory Management Dr Tony Wild
Figure 15.8 Fair Share Example Initial situation - Inventory available Best Practice in Inventory Management Dr Tony Wild
Figure 15.9 Fair Shares Allocation Example Arrears Safety Stock LT 3 Wk Allocation Total Require ment Current stock Transfer North Stores 20 60 40 140 25 115 West Stores 5 12 50 16 83 South Stores 46 110 150 113 419 200 219 78 170 220 169 642 225 417 Central Warehouse 37 Best Practice in Inventory Management Dr Tony Wild
Best Practice in Inventory Management Dr Tony Wild
Best Practice in Inventory Management Dr Tony Wild
Best Practice in Inventory Management Dr Tony Wild
Best Practice in Inventory Management Dr Tony Wild