1. Introduction to Global Supply Chain Management Module Six: Global Inventory Management

2. Presentation Agenda Inventory management defined
Strategic considerations for I.M.
Operational activities
Economic Order Quantity & Period Order Quantity
Order Point Systems
Safety Stock
Cycle Counting

3. and at a price that they’re willing to pay.
Inventory Management
“Inventory Management transcends the Buy-Side and Sell-Side of a company’s
supply chain to cover all facets of the acquisition, valuation, location, storage, usage, sale, distribution, recovery and disposal of merchandise related to the operation of a business. At a strategic level, inventory management must be aligned with a firm’s organizational, marketing and financial objectives. From a tactical perspective, inventory management is all about making goods available to customers when they want them, in the quantities they’d like to buy, via the means they’d like to make a purchase
and at a price that they’re willing to pay.
In a global environment, inventory management must be enabled by technology that
maximizes visibility across the supply chain, thus allowing management to make dynamic inventory management decisions. Ideally, inventory management software is linked to a company’s ERP system, as well as other “Best-In-Breed” software like Warehouse Management Systems and Transportation Management Systems.”
-Dan Gardner, April 2015

4. Different Industries & Business Models Determine How Supply Chains Are Designed
Retailer (brick & mortar)
E-Commerce
Wholesaler/Distributor
Manufacturer (OEM)
Tier I, II or III supplier
Agricultural importer/exporter
Marketer/Merchandiser

5. Different Types of Inventory & Operating Models Also Influence How Inventory Management is Executed
Raw materials
Components/sub-assemblies
Work In Process
Finished goods
Distribution inventory
Accessories
Spare parts
MRO
Build to stock
Build to order
Assemble to Order
Engineer to Order
Just In Time
Vendor Managed Inventories

6. Global Inventory Management: Integrating & Synchronizing the Supply Chain
Raw materials, components, sub-assemblies, work-in-process,
finished goods, accessories, service parts, MRO S U P L I E R
MANUFACTURER
DISTRIBUTION
SYSTEM C T O M
MATERIALS
MANAGEMENT
Buy Side
Sell Side

7. Inventory Management: Guiding Principles & Objectives
Maximize customer service (availability of product)
Contribute to the maximization of sales
Minimize inventory investment
Continuously reduce costs
Constantly increasing inventory accuracy

8. Inventory Management: Guiding Principles & Objectives
Increase productivity
Integrate & synchronized Buy-Side, Sell-Side and inventory management activities
Enhance overall supply chain performance
Increase overall company profitability

9. Global Inventory Management: Strategic & Tactical Considerations
Total dollar investment in global inventories
Number and type of Stock Keeping Units (SKU’s) or Part Numbers to carry
Locations of distribution centers, warehouses and/or satellite operations
By region and/or country
Risk Management policies & procedures

10. Global Inventory Management: Strategic & Tactical Considerations
In-house inventory management or with a Third Party Logistics (3PL) company
Systems integration
Inventory management system
Warehouse management system
Transportation management system

11. Regardless of the Model or Type of Inventory: I. M
Regardless of the Model or Type of Inventory: I.M.-Related Costs to Consider
Ordering costs
Clerical & Admin support
Carrying costs
Cost of capital
Opportunity cost
Lease
Payroll
Systems
Materials handling equipment
Maintenance
Supplies

12. Regardless of the Model or Type of Inventory: I. M
Regardless of the Model or Type of Inventory: I.M.-Related Costs to Consider
Transportation costs
Ocean, air, surface
Returns & reverse logistics
Risk management
Theft, pilferage & damage
Insurance
Security
Stock-out costs
Expedited transport
Back-order processing
Lost sales
Depletion of customer goodwill

13. Linking Inventory Management With Demand Management Activities

14. Linking Inventory Management With Demand Management Activities
Forecasting
Delivery Promising (Available To Promise, ATP)
Order Processing
Inventory Management
Order quantities
Order points
Safety Stock
ABC Analysis
Cycle Counting

15. Methods for Determining Order Quantities
Simultaneous to forecasting for demand, decisions must be made on:
In what quantities goods should be ordered
When orders should be placed
Those decisions must be made at an SKU or Part Number level

16. Integrating DRP with Inventory Management: Order Quantities & Order Points
In addition to gross-to-net exploding and lead time off-setting, distribution professionals must also determine order quantities and order points for replenishing finished goods in the distribution network
These activities help to integrate and synchronize DRP with Inventory Management
Economic Order Quantity (EOQ) calculates the optimum replenishment amount by balancing the total cost of an order with that product’s carrying cost

17. Integrating DRP with Inventory Management: Order Quantities & Order Points
An integrating activity between DRP and inventory management, an “Order Point” is reached when a product’s on-hand quantity reaches a pre-determined level
When inventory is depleted down to that pre-determined level, a replenishment order is generated by the system (based on EOQ in the form of a Planned Order Release)
Remember, order points are a function of demand during lead time and safety stock requirements

18. Economic Order Quantity
EOQ is a formula that is used to determine a replenishment order quantity for a product that balances the total cost of an order with that product’s carrying cost
Variables in the formula are:
Annual usage in units
Unit cost
Annual carrying cost
Ordering cost per order

19. Economic Order Quantity
Demand is relatively constant
Product is produced or purchased in lots and not continuously
Order costs and carrying costs are constant
Replacement occurs all at once
Lead time is stable
No volume discounts used
Best used for finished goods with independent (and predictable) demand

20. Periodic Order Quantity (POQ)
EOQ intends to balance the total cost of an order with its carrying cost
Periodic Order Quantity (POQ) calculates the period of time between orders
Instead of ordering the quantity, orders are placed to satisfy time intervals (quantities will differ based on actual demand)
Assumes that demand is uniform

21. The Order Point System
When the quantity of an item falls to a pre-determined level (order point), a replenishment order must be placed
The quantity to be ordered is often based on EOQ concepts
The key factor about the O.P. methodology is that it considers product demand during lead time (DDLT)
O.P. also considers Safety Stock (SS) in its calculation

22. The Order Point System Order Point = DDLT + SS
DDLT = Demand During Lead Time
SS = Safety Stock (Safety Stock is carried to
safeguard against supply chain variance(s)…
Forecast, demand, lead time, etc.)

23. Inventory Management: The Use of Min/Max Levels
A type of order point replenishment system where the “min” is the order point and the “max” is the order up to level
Order quantity is variable and depends on item usage during prior periods
ERP systems automatically notify the user to place an order
Lead time accuracy is integral to min/max success
High mins and maxes offer potential to bloat inventories
Used often for dependent demand items

24. Safety Stock & Inventory Management
Safety stock is additional inventory that is intended to safeguard against supply chain variation
Variation in quantity
Variation in timing
Factors that influence SS
Demand variability during lead time
Frequency of reorder
Service level desired
Length of lead time
Variability of lead time

25. Inventory Management: Cycle Counting
There is a big difference between periodic (yearly) physical inventories and cycle counting
Physical inventories are for financial purposes (Balance Sheet)
Cycle Counting assures inventory accuracy and is a building block for inventory reductions
The first in reducing inventories is knowing how much you really have
Especially effective for “A” items in an ABC System

26. Inventory Management: Cycle Counting
C.C. is an inventory accuracy auditing practice driven by a perpetual schedule of item-specific counts
Depending on the item, cycle counts can be done weekly, monthly, et al (daily for ultra-high value item like prescription narcotics)
Require the counting of certain items every day rotating locations in a warehouse
Goal is to find errors in physical counts vs. system records and continuously improve accuracy

27. End of Module Six Congratulations!!!