LOGISTICS MANAGEMENT SEMINAR

INVENTORY MANAGEMENT

Inventory Management
‡Inventory management is primarily about specifying the size and placement of stocked goods. ‡Definition: Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status
MANZOOR

‡ Inventory management is an important because inventories are usually the largest expense incurred from business operations ‡ Most companies will use an inventory management system that will track and maintain the inventory required to meet customer demand. ‡ A truly effective inventory management system will minimize the complexities involved in planning, executing and controlling a supply chain network which is critical to business success.

INVENTORY VALUATION. RETURNS AND DEFECTIVE GOODS AND DEMAND FORECASTING. REPLENISHMENT. QUALITY MANAGEMENT. ASSET MANAGEMENT. AVAILABLE PHYSICAL SPACE FOR INVENTORY. PHYSICAL INVENTORY. FUTURE INVENTORY PRICE FORECASTING.SCOPE ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ CARRYING COSTS OF INVENTORY. . INVENTORY FORECASTING. INVENTORY VISIBILITY.

FUNCTION ‡ Make scheduling and shop loading more efficient ‡ Narrow the gap between sales and stock replacement ‡ Fine tune record keeping accuracy for better inventory management ‡ Determine exact material status and inventory dollar burden ‡ Reduce cost of inventory obsolescence ‡ Become truly responsive to your customersÑ real needs .

INVENTORY CONTROL ‡ Mechanical procedure for implementing an inventory policy. RAHILA . ‡ Control procedures must be devised ‡ It defines how often inventory levels are reviewed and compared against the inventory parameters defining when to order and how much to order.

Perpetual Review 2. Periodic review .‡ Inventory control procedures are two: 1.

‡ This control system can be reviewed through a re order point and order quantity.Perpetual Review ‡ It reviews inventory status daily to determine replenishment needs ‡ In order to utilize this type of inventory control. . accurate accountability is necessary for all stock keeping units.

any item could fall below the desired reorder point prior to review period.Periodic Review ‡ It reviews the inventory status of an item at regular intervals such as weekly or monthly ‡ For periodic review. . the basic reorder point must be adjusted to consider the extended intervals between reviews. ‡ Since inventory status counts are completed only at a specific time.

.‡ Therefore the assumptions is made that the inventory will fall below ideal reorder status prior to the periodic count approximately one half of the review times.

MODIFIED CONTROL SYSTEMS ‡ To accommodate specific variations and combinations of the basic periodic and perpetual control systems have been developed Vinu .

TYPES OF MCS  Target level replenishment system  Optional replenishment system .

REACTIVE METHODS ‡ It responds to a channel memberÑs inventory needs by drawing the product through the distribution channel .

ASSUMPTIONS ‡ It assumes infinite availability at the source ‡ It assumes infinite availability at the location/ there are no constraints of inventory availability ‡ It operates best when customer demand patterns are relatively stable and consistent .

Contd«« ‡ It determine each distribution centreÑs timing and quantity of replenishment orders independently of all other sites. . ‡ The performance ±cycle length should not be correlated with demand. including the supply source.

INVENTORY PLANNING METHODS ‡ Inventory planning methods use a common information base to coordinate inventory requirements across multiple locations or stages in the value added chain ‡ Two inventory planning methods are  Fair share allocation  Distribution Requirements Planning (DRP) azhar .

Fair share allocation ‡ Provides each distribution facility with an equitable or fair share of available inventory from a common source. ‡ Inventory planner determines the amount of inventory that can be allocated to each distribution centre from available inventory .

FSA example Plant Warehouse Inventory Units 600 units DISTRIBUTION CENTRE 1 Inventory 50 units Daily use 10 units DISTRIBUTION CENTRE 2 Inventy 100 unuts Daily use 50 units DISTRIBUTION CENTRE 3 Inventory 75 units Daily use 15 units .

Distribution Requirement Planning (DRP) ‡ DRP is a more sophisticated planning approach that considers multiple distribution stages ‡ It is an extension of Manufacturing requirement planning (MRP) ‡ DRP is guided by customer demand ‡ MRP controls inventory until manufacturing or assembly is completed ‡ DRP then takes the coordination responsibility .

performance cycle length etc .‡ The fundamental DPR planning tool is the schedule ‡ The schedules are developed using weekly time increment known as buckets ‡ For each site Schedule reports current on hand. safety stock.

Customer Distribution Centre Distribution Centre Distribution Centre Distribution Centre Distribution Centre Distribution Centre Regional Warehouse Regional Warehouse Plant Warehouse Finished Assembly .

‡ Improved and more effective promotional and new product introduction plans. ‡ Enhanced ability to offer customer a coordinated inventory management system. .BENEFITS OF DRP ‡ Marketing Benefits ‡ Increased service levels that increase on time deliveries and decrease custom complaints. ‡ Improved inventory coordination with other enterprise functions.

Logistic Benefits Reduce distribution centre freight Reduce inventory level Decreased warehouse space requirement ‡ Reduce customers freight cost ‡ Reduce inventory visibility ‡ ‡ ‡ ‡ .

‡ Primary difficulty in implementing this system is determining the decision rules that should be used for making adjustment.ADAPTIVE INVENTORY MANAGEMENT SYSTEM ‡ Combines reactive and inventory planning logistics. sadath . ‡ Must adjust in terms of location and time. ‡ Rationale of this is that customer demand must usually be treated as independent. ‡ Uniqueness of this is that it changes as environmental condition change.

‡ Inventories can be moved upstream facilities. ‡ An adaptive and selective logic does not push slow or inconsistent movers..ADAPTIVE DECISION FACTORS ‡ Inventory mgt should consider the relative contribution or profitability of individual market segments.. . ‡ Rule overcomes 2 limitations.. that provide transport scale economies. ‡ Appropriate decision rule is to push inventory to the market since there is little risk of poor allocation.

‡ The difference between independent and dependent demand is the second factor that influences the selection of an appropriate inventory mgt logic. ‡ 3 uncertainty of in the channel.. ‡ Supply ‡ Demand ‡ Performance cycle ..

‡ To determine which type of system is appropriate. the combination of 3 uncertainties must be investigated for each location. ‡ Decision rules for system: ‡ For supply uncertainty planning based system ‡ Planning approach ± manage shipments to markets. ‡ For performance cycle time reactive inventory system .

INVENTORY MGT ADJUSTMENT CATEGORIES ‡ Temporal : the system must have ability to adapt over time. ‡ Spatial: Ability to adapt by location. The modification process is called spatial adjustment ‡ Product: product availability or demand changes. . the system should be able to switch from one approach to the other in order to provide most efficient means for distributor.

nature of the item etc. profit contribution. inventory value.line or ABC classification ‡ Groups the product or market with similar characteristics to facilitate inventory management ‡ Classification based on measures such as sales. napi .Inventory management process Strategy development process it includes 1.. product/market classification ‡ Objective is to focus and refine inventory management effort ‡ Also called fine. usage rate.

. forecasting method.2. management technique and review cycle. Segment strategy definition ‡ It includes specification for all aspects of inventory management process including service objective.

performance objective. order quantities and reorder period. inventory carrying cost percentage. . Operationalized policies and parameters ‡ It defines the detailed procedure and parameter ‡ The Procedure define data requirements. service objective. and decision guide lines.3. software applications. ‡ The Parameter include actual numeric values such as review period length.

Information integration.Methods for improved inventory management Some firms use additional initiatives to improve inventory effectiveness ‡ The initiatives include : 1. and 3. Policy definition and refinement 2. Expert systems application ‡ fahim .

.Policy definition and refinement ‡ Inventory management incorporates a number of policies and procedures that guide inventory related decisions. These involve performance measures and training ‡ a) Performance measures: Clear and consistent performance measures for inventory planners are key ingredients in the inventory management process. These measures must reflect the trade off between service and inventory level.1.

b) Training: ‡ Inventory management is a very complex discipline because of the number of factors involved in the process. ‡ It is also important to understand the nature and dynamics of the interfaces between enterprise inventory management and other entities within the value chain ‡ Two types of training are appropriate 1. review periods. order quantity and safety stock influence inventory operations and performance . Planners should understand how inventory parameters such as service objective.

Planners should understand how their inventory management decisions affect other members of the value chain. Inventory planners must also consider the impact of demand declines and surges on the resources of other value chain partners .2.

‡ Current technology facilitates information exchange using global networks. Information integration ‡ Inventory effectiveness and performance can be substantially increased and uncertainty decreased by integrating requirements information across the enterprise and among channel partners.2. electronic data interchange and satellite communication .

Expert Systems Application ‡ Expert systems use a computerized knowledge base to share inventory management expertise across the enterprise.3. inventory management logic and strategies to employ with each product/market group ‡ Results indicate that expert systems can provide substantial improvements in productivity and inventory performance . This shared expertise can supplement the training and awareness ‡ Expert systems may provide insight into the review period.

INVENTORY CONTROLLING METHOD .

‡ ABC ANALYSIS ‡ VED ANALYSIS .