reorder point & safety stock
DESCRIPTION
A presentation on the importance of a strategic approach in order to calculate Inventory levels in terms of reorder points and safety stock levels.TRANSCRIPT
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REORDER POINT & SAFETY STOCK
LEVELS
PSL PLANNING DEPARTMENT JUNE 2013
TAHA BIN EJAZZERMEENA KHAN
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PROJECT TITLE
PROGRAM FOR CALCULATING
REORDER POINT & SAFETY STOCK
LEVELS
SLIDE 1/14
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MAJOR VARIABLES
Committed FERT Capacities
Active Production/ BOM versions
Material Lead Times
SLIDE 2/14
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SOME QUESTIONS
WHY FOCUS OF REORDER POINTS AND SAFETY STOCK LEVELS?
WHY DO WE NEED INVENTORY?
WHY DO WE OPTIMIZE?
SLIDE 3/14
TO BALANCE INFLOWS AND OUTFLOWS
TO CATER FLUCTUATIONS IN DEMAND
TO MINIMIZE HOLDING, FIXED COST AND OTHER TIED-UP FUNDS
& THEIR
ANSWERS
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WHAT ARE THE SYMPTOMS OF POOR INVENTORY MANAGEMENT (PIM)?
Material Shortage Excessive Inventory
CAUSES
Ineffective demand study
Poor supplier management
Excessive production defects
Just-in-case mentality Absence of effective
monitoring Suppliers offer discounts
SLIDE 4/14
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WHAT’S THE OBJECTIVE?
SLIDE 5/14
BALANCE INFLOWS WITH OUTFLOWS
HIGH QUALITY PRODUCTS ON LOWEST POSSIBLE COSTS
MINMIZE INVENTORY – WITHOUT COMPROMISE RM
AVAILABILITY
OPTIMAL INVENTORY LEVELS TO REVEAL PROBLEMS
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PROJECT DELIVERABLES
SLIDE 6/14
Optimal inventory levels
A program to identify the quantities of raw materials
INPUT: Forecasted values of order quantities
OUTPUT: Production Budget for all Raw Materials
Identify possible opportunity costs for planned
projects.
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SOP BIRD’S-EYE-VIEW
SLIDE 7/14
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THE FIRST PROGRAM
• MATERIAL
GROUPS
• QUANTITIES
INPUT
• SFG QUANTITY
• BOMs
PROCESSOR • RAW MATERIAL
QUANTITY
• MATERIAL
GROUPS
OUTPUT
SLIDE 8/14
Programs\Program 1\Input & Output.xlsx Programs\Program 1\Processor.xlsx
THE RAW MATERIAL QUANTITY CALCULATOR
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THE SECOND PROGRAM
•RM DEMAND PER
MONTH
•LEAD TIME
•SERVICE LEVEL
INPUT
•STANDARD DEVIATION
•NORMAL DISTRIBUTION
•RM = SAFETY
STOCK+LEAD TIME
DEMAND
PROCESSOR
• REORDER POINT
• SAFETY STOCK
LEVELS
OUTPUT
SLIDE 9/14
Programs\Program 2.xls
THE REORDER POINT & SAFETY STOCK CALCULATOR
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THE SOP
SLIDE 12/14
• EITHER ZLIN, ZCHM OR ZARNSELECT A RAW MATERIAL
• PRODUCT OF GROSS PROFIT % AND RM QUANTITY USAGE PER PAA
CALCULATE STOCK-OUT COST (M) IN USD/PAA
• IDENTIFY COST OF RM PER UNIT AREA USING WAREHOUSE COST CENTRE VALUES
CALCULATE HOLDING COST (H) OF RM FOR DURATION OF
LEAD TIME IN USD/PAA
• SERVICE LEVEL, pIDENTIFY SERVICE LEVEL
• FIND ITS USAGE AS PER FORECAST FROM THE OUTPUT OF PROGRAM-1
IDENTIFY PAST SALES OF RM USING PROGRAM-1
• SELECT A FORECASTING MODEL TO KNOW THE QUANTITY FOR THE DURATION OF LEAD TIME
FORECAST QUANTITY AS PER LEAD TIME
• USE THE EXCEL SHEET AS SHOWN:• Programs\Program 2.xls
CALCULATE REORDER POINT & SAFETY STOCK LEVELS USING
PROGRAM-2
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SAMPLESLIDE 13/14
• ZARN: LYCRA 44 Dtex/166L WHITESELECT A RAW MATERIAL
• M = (72% x 0.00023) + 0.00023 = USD 0.004• Programs\STOCK OUT COST.xlsx
CALCULATE STOCK-OUT COST (M) IN USD/PAA
• H = USD 5e-8• Programs\CARRYING COST.xlsx
CALCULATE HOLDING COST (H) OF RM FOR DURATION OF LEAD
TIME IN USD/PAA
• p = 0.99• Programs\SERVICE LEVEL.xlsxIDENTIFY SERVICE LEVEL
• AVERAGE CONSUMPTION = 18.4 KG/MONTHIDENTIFY PAST SALES OF RM USING PROGRAM-1
• EXCEL ADD-IN USED FOR FORECASTING FOR THE LEAD TIME DURATION
FORECAST QUANTITY AS PER LEAD TIME
• ROP = 60 KG, SAFETY STOCK = 18 KG• Programs\Program 2.xls
CALCULATE REORDER POINT & SAFETY STOCK LEVELS USING
PROGRAM-2
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SLIDE 14/14
THESE CALCULATIONS HAVE HELPED US SEGREGATE SAFETY
STOCK FROM ROP
ALSO IN IDENTIFYING WHEN THE ORDER MUST BE PLACED,
KEEPING IN MIND THE CONSUMPTION AND LEAD TIME
CONCLUSION
RAW MATERIALLYCRA 44 Dtex/166L WHITE
ACTUAL CALCULATED
SAFETY STOCK 0 18
REORDER POINT 100 60
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THANK YOU!ANY QUESTIONS?