2. 2 Inventory Management in the Supply Chain Motivation for Good Performance The Basic EOQ Model Statistical Methods Monte Carlo Simulation Method

3. 3

4. Source: Brown, M., Inventory Optimization: Show Me the Money, Supply Chain Management Review, July 2011.

5. 5 Tier 1 Suppliers Manufacturer Distributor RetailerCustomer

6. 6

7. 7 Source: Weltman example slide 18, calculation of safety stock when demand and lead time vary.

8. 8 How much When ddlt

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10. 10

11. 11 Hard Drive Annual Demand = 25,000 Lead Time = 7 days Demand During Lead Time = (25,000 / 365) X L = 480 Cost = $128 per drive H = 25% of unit cost per year S = $1000 per order

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14. 14 L=7d Inventory Position Day R=480

15. 15 Inventory Position Day R=?

16. 16 Inventory Position Day R=?

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18. 18 Hard Drive Annual Demand = 25,000 Lead Time = 7 days Demand rate = 68.5 days, normally distributed with s.d. of 40 days Cost = $128 per drive H = 25% of unit cost per year S = $1000 per order 95% Service Level

19. 19 Sources: Eppen, G.D., & Martin, R.K. (1988). Determining safety stock in the presence of stochastic lead time and demand. Management Science, 34(11), 1380-1390. Hadley, G., & Whitin, T.M., Analysis of Inventory Systems, Printice Hall, Englewood Cliffs, NJ, 1963.

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22. 22 Simulation refers to an analytical method of repeated, random sampling, meant to approximate the behavior of a real-life system, especially when other methods are too, costly or difficult to reproduce.

23. 23 Mean daily demand68.5 Standard deviation40 Daily Demand - Simulation74.98 Lead Time7 demand during lead time524.86

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27. 27 What has been your smallest, largest, and most likely daily demands for the hard drive?

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