inventorymgmt
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Inventory Management
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❖PLEASE COLLECT YOUR COURSE MATERIAL FROM REPROGRAPHY SECTION.
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Reactive Methods
❖ Reactive inventory system responds to channel member’s inventory needs by the drawing the product through the distribution channel.
❖ Reactive system waits for customer demand to pull the product through the system.
❖ Order quantity is a function of safety stock levels and predetermined maximum level
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Reactive Methods
I - 250ROP - 200OQ - 400
I - 45ROP - 50OQ - 200D - 5
I - 80ROP - 75OQ - 200D - 14
Distribution Center
Wholesaler A
Wholesaler B
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Reactive Methods - Assumptions
❖ All customers, market areas, products contribute equally to profits
❖ It assumes infinite availability at the source
❖ It assumes infinite inventory availability at the supply location too
❖ Performance-cycle (lead time) is constant
❖ Customer demand patterns are relatively stable and consistent - doesn’t apply for lumpy demands
❖ Each distribution center’s timing and quantity of replenishment orders are determined independently of all other sites, including the supply source
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Planning Methods - Multistage Inventory
❖ Fair Share Allocation
❖ Distribution Requirements Planning (DRP)
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Fair Share Allocation
PLANT WAREHOUSE Inventory 600 units
Safety Stock 100 units
DISTRIBUTIONCENTER 1
DISTRIBUTIONCENTER 2
DISTRIBUTIONCENTER 3
Inventory 50 units
Daily use 10 units
Inventory 100 units
Daily use 50 units
Inventory 75 units
Daily use 15 units
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Fair Share Allocation❖ Common Days’ supply DS = (Aj + ∑Ij) / ∑Dj , Where
❖ DS = Common days’ supply for distribution center inventories
❖ Aj = inventory units to be allocated from plant warehouse
❖ Ij = inventory in units for distribution center j
❖ Dj = daily demand for distribution center j
❖ Amount to be allocated to each distribution center is given by,
❖ Aj = (DS - (Ij / Dj)) * Dj
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Inputs to DRP
❖ Sales forecast by SKU at each ISL (Inventory Stocking Location)
❖ Customer orders for current and future delivery - Outstanding purchase orders or manufacturing orders
❖ Available inventory for sale by SKU at each ISL
❖ Logistics, manufacturing and purchasing lead times
❖ Modes of transport and deployment frequencies
❖ Safety stock policies by SKU at each ISL
❖ Order quantity by SKU at each ISL
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DRP - Marketing Benefits
❖ Improved service levels - On time deliveries and customer complaints
❖ Improved and effective promotional plans
❖ Improved ability to anticipate shortages of right items
❖ Improved inventory coordination with other functions of firm
❖ Customers finally benefit due to all of the above
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DRP - Logistics Benefits
❖ Reduction of DC’s freight costs due to coordinated shipments
❖ Reduced inventory levels as what product when it is needed is determined
❖ Decreased warehouse space requirements
❖ Fewer back orders leading to reduction of freight costs
❖ Improved inventory visibility
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STRATEGY DEVELOPMENT PROCESS
❖ Product / Market Classification
❖ Segment Strategy Definition
❖ Operationalized Policies and Parameters
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PRODUCT / MARKET CLASSIFICATION
Product ID
Annual Sales (000’s)
% total sales
CumulativeCategory
Sales% Products%
1 45000
2 35000
3 25000
4 15000
5 8000
6 5000
7 4000
8 3000
9 2000
10 1000
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PRODUCT / MARKET CLASSIFICATION
Product ID
Annual Sales (000’s)
% total sales
CumulativeCategory
Sales% Products%
11
12
13
14
15
16
17
18
19
20
0
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SEGMENT STRATEGY DEFINITION
First-line classificati
on
Service objectiv
e
Forecasting
procedure
Review period
Inventory mgmt
Replenishment
monitoring
A - promotion
al99%
Aggregate
SchedulePerpetual DRP Daily
A - regular 98Sales
historyPerpetual DRP Daily
B 95Sales
historyWeekly DRP Weekly
C 90Sales
historyBiweekly ROP Biweekly