2. Inventory Stock of items held to meet future demand Inventory management answers two questions How much to order When to order

3. Reasons To Hold Inventory Meet unexpected demand Smooth seasonal or cyclical demand Meet variations in customer demand Protect supply chain against uncontrollable external factors Take advantage of price or quantity discounts Hedge against price increases

4. Approaches to Inventory Management Just-in-case inventory (overstocking) Carry high inventories to ensure high customer service level (expensive!) Just-in-time inventory (understocking) Carry minimal inventory levels to control costs in exchange for risk of more stockouts

5. Inventory Costs Carrying Cost cost of holding an item in inventory Ordering Cost cost of replenishing inventory Shortage Cost temporary or permanent loss of sales when demand cannot be met

6. Item Materials With Independent Demand Materials With Dependent Demand Demand Source Company CustomersParent Items Material Type Finished GoodsWIP & Raw Materials Method of Estimating Demand Forecast & Booked Customer Orders Calculated Planning Method EOQ & ROPMRP Dependent versus Independent Demand

7. Push/Pull View of Supply Chains Procurement, Manufacturing and Replenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSESPULL PROCESSES