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Inventory. Stock of items held to meet future demand Inventory management answers two questions How much to order When to order. Reasons To Hold Inventory. Meet unexpected demand Smooth seasonal or cyclical demand Meet variations in customer demand

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Presentation Transcript
Inventory
Inventory

  • Stock of items held to meet future demand

  • Inventory management answers two questions

    • How much to order

    • When to order


Reasons to hold inventory
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


Approaches to inventory management
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


Inventory costs
Inventory Costs

  • Carrying Cost

    • cost of holding an item in inventory

    • Examples include warehousing, handling, pilferage, spoilage and investment costs

  • Ordering Cost

    • cost of replenishing inventory

  • Shortage Cost

    • temporary or permanent loss of sales when demand cannot be met


Dependent versus independent demand

Materials With

Materials With

Item

Independent Demand

Dependent Demand

Demand

Company Customers

Parent Items

Source

Material

Finished Goods

WIP & Raw Materials

Type

Method of

Forecast & Booked

Calculated

Estimating

Customer Orders

Demand

Planning

EOQ & ROP

MRP

Method

Dependent versus Independent Demand


Push pull view of supply chains
Push/Pull View of Supply Chains

Procurement,

Customer Order

Manufacturing and

Cycle

Replenishment cycles

PUSH PROCESSES

PULL PROCESSES

Customer

Order Arrives


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