1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. Figure 15.8 Fair Share Example Initial situation - Inventory available
Best Practice in Inventory Management
Dr Tony Wild

11. 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

12. Best Practice in Inventory Management
Dr Tony Wild

13. Best Practice in Inventory Management
Dr Tony Wild

14. Best Practice in Inventory Management
Dr Tony Wild

15. Best Practice in Inventory Management
Dr Tony Wild