1. INVENTORY MANAGEMENT
Kishore Kumar Pochampally, PhD, PMP®, Six Sigma Black Belt (ASQ)
School of Business, Southern New Hampshire University
Women & Money Forum
Center for Women’s Business Advancement
January 9, 2014

2. Historical Perspective
Toyota Camry and Corolla
Old cars
race car pit stop
Toyota - 2 pages

3. Need for Inventory Lead time Economies of scale (quantity discounts)
Uncertainty in quantity and quality of supply
Uncertainty in lead time

4. customer Finished products Parts inventory inventory Supplier Supplier4

5. customer Finished products Parts inventory inventory Supplier Supplier5

6. Lean Production / Just-in-Time Production
Supplier
customer
Supplier
Supplier
Finished products
inventory
Parts
inventory
Lean Production / Just-in-Time Production 6

7. customer push pull Finished products Parts inventory inventory
Supplier
push
pull
customer
Supplier
Supplier
Finished products
inventory
Parts
inventory 7

8. Central Distribution Center (can ship to any dealer in 24 hours)
push-pull
Dealer A
Dealer B

9. Concept of Functional and Innovative Products
Functional products characterized by:
slow technology clock speed, low product variety, and typically low profit margins
Innovative products characterized by:
fast technology clock speed and short product life cycle, high product variety, and relatively high margins.
push strategy
push-pull strategy

10. In a push strategy, the focus is on forecasted demand
In a pull strategy, the focus is on reacting to actual
demand
Higher demand uncertainty leads to a preference for a pull strategy
Lower demand uncertainty leads to a preference for a push strategy
Fast clock speed products should have modular product
structure (so that final assembly can be postponed as
much as possible)

11. Economic Packaging

12. Standardization part standardization process standardization
(common parts)
process standardization
(common processes)

13. Benetton Old Manufacturing Process
Spin or Purchase Yarn
Dye Yarn
Finish Yarn
Manufacture Garment Parts
Join Parts

14. Benetton New Manufacturing Process
Spin or Purchase Yarn
Manufacture Garment Parts
Join Parts
Dye Garment
This step is postponed
Finish Garment

15. Third Party Logistics (3PL)
Use of an outside company to perform all or part of a firm’s product distribution functions.
Ryder designs, manages, and operates all of Whirlpool’s inbound logistics.

16. The Five S’s Sort Keep only what is needed Straighten
A place for everything, and everything in its place
Shine
Clean work areas to expose problems
Standardize
Develop systems and procedures to monitor conformance to the first 3 rules
Sustain
Maintain the standard processes for the first 3 rules

17. The Five S’s Sort Before Sorting
Sort: Unneeded items take up valuable work space.
Red-tagging
Before Sorting

18. The Five S’s
Straighten
5S kitchen
After Straightening

19. The Five S’s
Shine
After Shining

20. 5S Game
This sheet represents our current work place.
Our job during a 30 second shift, is to strike out the numbers 1 to 49 in correct sequence. Example:
Instruction: Strike out numbers 1 to 49 in sequence during the 30 second shift

21. AVG: Average Daily Demand STD: Standard Deviation of Daily Demand
(Higher the variation in daily demand, higher the STD)
α: Service Level
(90% service level means 10% stockout)
Inventory Level
Reorder Point
Safety Stock
Time
Lead
Time (L)

22. AVG: Average Daily Demand STD: Standard Deviation of Daily Demand
(Higher the variation in daily demand, higher the STD)
α: Service Level
(90% service level means 10% stockout)
Reorder Point = (AVG * L) + (Safety Stock)
Safety Stock = z * STD * SQRT(L)
{The higher the α, the higher the z value}
Inventory Level
Reorder Point
Safety Stock
Lead
Time (L)
Time

23. Safety Stock = z * STD * SQRT(L)
AVG: Average Daily Demand
STD: Standard Deviation of Daily Demand
(Higher the variation in daily demand, higher the STD)
α: Service Level
(90% service level means 10% stockout)
Safety Stock = z * STD * SQRT(L)
{The higher the α, the higher the z value}
Reorder Point = (AVG * L) + (Safety Stock)
Average Inventory Level = (Order Quantity / 2) + (Safety Stock)
Inventory Level
Order Quantity
Reorder Point
Safety Stock

24. HOW TO REDUCE INVENTORY?
Safety Stock = z * STD * SQRT(L)
{The higher the α, the higher the z value}
Reorder Point = (AVG * L) + (Safety Stock)
Average Inventory Level = (Order Quantity / 2) + (Safety Stock)
HOW TO REDUCE INVENTORY?
Reduce L
Reduce STD
Reduce Order Quantity

25. Kishore Kumar Pochampally
Thank you!
Kishore Kumar Pochampally