Methods for inventory reduction (1):

1. Improve forecast and demand planning – use an integrated approach such as S&OP(Sales
and Operations Planning) or SIOP (Sales and Inventory Operations Planning) process to
better coordinate sales, marketing, finance and manufacturing, MEIO* (multi echelon
inventory optimization), or DIFF** (distributed inventory flow forecasting)
2. Inventory segmentation and segment strategy definition - reduce variability demand
3. SKU Proliferation and Postponement strategies*** - reduce variability demand using the
pull technique - Demand-driven Supply Chain (DDSC) or manage SKU proliferation by
postponing final product differentiation using the PUSH-PULL model
4. Use technology to gain real-time supply chain visibility, such as:
• supply chain inventory levels (this helps you to synchronize supply with demand)
• Order Status - Order management “hub”
5. Inventory Control:
a. Continuous or periodic review for replenishment
b. Managing inventory in the SC – use MEIO or Transfer the excess stock to another
company location where the inventory is needed
c. Periodic review to identify slow-moving and obsolete products (SLOB) – decide selling
strategies
d. Perform ABC analysis on the products to identify fast movers and slow movers
• Reduce the number of A items using ABC approaches
Because Class A items account for the major part of the business, a high-
frequency periodic review policy is appropriate.
• Package a slow mover with something else to sell
(continued in the next slide)
Methods for inventory reduction (2):
5. Inventory control (continued from previous slide)
e. Improve Inventory Record Accuracy by continuous or periodic review
Replaces an annual inventory physical inventory count by a system where part of
the inventory is counted every day, and each item is counted several times per
year
6. Supply Contracts – Working with suppliers to improve reliability (fiabilitatea) by
developing a win to win relationship to reduce supply lead times variability or
how to manage demand uncertainty (cererea aleatoare sau necunoscuta).

7. Strategic Alliances – how you manage supplier-buyer partnership

Collaborative Planning, Forecasting and Replenishment (CPFR)
Quick Response (QR),
Vendor Managed Inventory (VMI) to shift inventory, JIT (Just in Time)etc
8. Add some technology and reduce transaction delays (inbound, in-store and
outbound transactions) and improve Inventory record accuracy* .
9. Reduction of the product portfolio
10. Encourage product substitution
11. Encourage more vendor consignment stock.
Shift more inventory or inventory ownership to suppliers
 Methods for inventory reduction (3):
12. Reduce safety stock levels by:
• Reduce order supply cycle time -find closer suppliers and negotiate smaller,
more frequent deliveries from suppliers
• Pool safety stock for multiple locations – stoc de siguranta care sa deserveasca
mai multe centre de distributie (stocul de siguranta pentru acelas nivel de servire
creste odata cu cresterea numarului centrelor de distributie din retea – solutia
poate fi: stoc de siguranta in depozitele centrale pentru produse care au cerere
mica). See Inventory multi-stage optimization.

13. Quantitative approaches

Approaches similar to determining the right balance between inventory
holding cost and ordering cost
14. Analysis of risk factors that can influence efficient inventory management
15. Change the safety stock service level from 98% (or where ever you have it) to
95% sau reducerea diferentiata in corelatie cu marja de profit si a nivelul de
servire pentru produsele din clasa A (marja mica-nivel mai mic de servire).
16. Use the return rate to plane the stock volume (ex. If you have a 10% return
rate, then this needs to be factored into your planning).

17. Inventory measurements by Key Performance Indicators – you can't

improve what you don't measure - monitorizarea stocurilor pentru
imbunatatirea proceselor de gestiune a stocurilor
 The concept of Closed Loop
Inventory management

Event
management
 Conclusions
Inventory management is not a stand-alone business process that occurs
after other processes are complete.

It is a high-level process that should be integrated into other supply chain

planning processes including, at a minimum, sales and operations planning,
master production scheduling and supply action management. Inventory
managers should support multiple business objectives and should have
business integrated targets related to inventory levels, customer service
levels, total inventory cost, and inventory quality.
 Inventory Management
APICS* defines inventory as “those stocks or items used to support production
(raw materials and work-in-process items), supporting activities (maintenance,
repair, and operating supplies) and customer service (finished goods and spare
parts).”
1. When to place an order? System criteria
2. How much to order? Strategic

•Customer Service Structure of inventory •Cost

objectives management system objectives

Tactical Inventory costs

Demand - ordering
Lead time - holding
Control variables
Customer service level - purchasing
- shortage
 How should inventory be managed (point to reorder, how much to order, ..)?
 Why does inventory fluctuate and what strategies minimize this (uncertainty
demand , supply process or other)?

*APICS - APICS is the association for supply chain management and the leading provider of
research, education and certification programs
 Inventory Management Objectives
Customer Service Inventory costs (Carrying, Order, Stock-out)
i.e., Stock Availability (service level)

•Service •Cost
objectives objectives

1. How often to review?

2 When to place an order?
3. How much to order?
4. How much stock to keep?

• Inventory management is a financial trade-off between cost objectives (inventory

costs) and customer service level (shortage costs - stock availability) .
The objective of inventory management is :
to provide uninterrupted production, sales, and/or customer-service levels at the
minimum cost.

– The more stock, the more working capital is needed and the more stock
depreciation you get.
– On the other hand if you do not have enough stock, you get inventory stock-
outs, missing potential sales, possibility interrupting the whole production
process.
 What drives inventory in the supply chain?
(Factorii care influenteaza nivelul stocului)

•Service level – what is the commitment internally and to the customer?

Higher service level requires more inventory than lower? What do you really
need to succeed? What are the desired transportation modes? Are you
expediting shipments?
•Lead times (durata aprovizionarii) – inventory is maintained to cover for the
wait to replenish it.
•Demand and variability – of course forecast and variability impact inventory -
the higher the variability the more inventory is needed.
•Reorder frequency and quantity
•Transportation times and variability
•Inventory positioning across the supply chain – where you keep the inventory
in the supply chain can make a big difference.
•Risk in the system – how much inventory do you need to maintain to mitigate
the possible high financial impact of unexpected failures either internal or
external?
 CURRENT SCM PRIORITIES
First
priority:

Second priority:

American Productivity and Quality Center

Inventory Is a Cost to Be Managed?

A frequent mistake made in the management of inventory - a corporate mandate to reduce

inventory. Inventory should never be managed to a financial target. Instead, it needs to be
based on the requirements of customer policy and the supply chain strategy.
 Methods for inventory Reduction
Selective reduction of customer service levels
The trade-offs between inventory
investment and customer service (fill rate)?

Safety Stock - managing uncertainty in the

Supply Chain
•What if Supplier is late in delivering the
o Cycle Stock – Stocul curent items?
o Safety Stock – Stocul de siguranta •What if demand is higher than expected?
 Sevice Level – Gradul de Onorare a Cererii

Variante de calcul Nivel de Servire (Fill Rate or Availability): Indicele disponibilitatii produselor in stoc

1. Item Fill Rate (98.5%) : Total number of items shipped or supplied/ the total number of items ordered. In tabel din
totalul de 1010 produse comandate nu s-au livrat 15, adica: Item Fill Rate=(1010-15)/1010*100=98.5%.
Cat la % din articolele comandate au fost livrate?

2. The line item fill rate: the percentage of line items on the order shipped in their entirety. Exemplu: o comanda are
10 linii de produse. Din acestea 5 linii au fost livrate complet.
Line Item Fill Rate = 5/10 = 50% ; 2 este mai restrictiv decat 1.
Cat la % din liniile unei comenzi au fost complet livrate?

3. Order fill rate (80%): the percentage of orders shipped completely. In tabel din 6 comenzi, 2 comenzi au fost livrate
incomplet. Order fill rate=(6-2)/6=4/6*100=66.66%.
Cat la % din numarul comenzilor au fost complet livrate?
Order fill rate este cel mai restrictiv indicator de masurarea a nivelului de servire.

Conclusion: It is important to agree a common goal between suppliers and customers and to establish what the
customers need in terms of availability.
The appropriate measure can then be used for monitoring.
 COST OBJECTIVES - Inventory Costs -
1. Ordering Costs (costurile comenzilor de aprovizionare =
costul de lansare a comenzii de aprovizionare = cl ): The
direct labor costs in Purchasing and Warehouse operations
associated with PO (purchase order) - costs of placing and
receiving an order
- cost to place purchase orders : Enter PO/Requisition
and any Approval Steps, such as forms (documents),
papers, labor(clerical costs)
- cost of transportation (fuel expenses) and tracking
orders
- cost of receiving and inspecting the purchased items
inclusive handling (unloading) and putaway costs.
- Cost of quality product inspectation at supplier side
(cost to travel, quality inspectors salary)
- Cost of Invoice Process and Vendor Payment
1a. Setup Costs: when a firm produces the goods internally,
ordering costs are replaced by setup costs. The costs of
preparing equipment and facilities so they can be used to
produce a particular product or component
Examples: prepare the order paperwork,
processing and tracking the order
operations, the cost of setting up the
Costul pe comandă = [Total machine, and first off inspection, setup
cheltuieli anuale de aprovizionare] labour, lost income (from idled
facilities), and test runs.
/ [Nr. total de comenzi anuale]
Ordering Costs (costurile aferente comenzilor
de aprovizionare)

R= Replenishment Costs
 2. What is Inventory Carrying Cost?
( costurile de stocare - cs )

Carrying Costs (costurile de stocare - cs ): The costs of keeping inventory –

se calculeaza pentru o anumita perioada de timp, de obicei un an de
zile
It includes: insurance, obsolescence, opportunity cost of funds tied up
in inventory, handling costs and storage space.

• Inventory carrying cost is a ratio which describes the relationship

between the cost-of-owning-inventory-per-year (costurile anuale de
stocare) and the annual average inventory value (valoarea anuala a
stocului mediu). Un produs care ramane in stoc un an de zile se
numeste dead stock.
• For example, if your inventory carrying cost is 25% and your annual
average inventory is $1Million, then your annual cost of owning
inventory is $250.000.
Many Expenses Contribute to Inventory Carrying Cost

Costul spatiilor de Costul produselor

Costul capitalului stocare Costul asigurarii
deteriorate stocului
blocat in stocuri.
Se ia in calcul
randamentul in Taxe, Impozite platite
investitiile Costul produselor
Costul facilitatilor iesite din uz de vanzator
alternative de risc
speciale de pastrare
apropiat
a produselor in stoc
(perisabile, toxice,
inflamabile,etc) Costuri datorate Costul manipularii
furtului, incendiilor produselor
 Carrying Cost - Percentage of Product Value
(costurile anuale de pastrare a unui articol in stoc)
Percentage of
Annual Carrying Cost Product Value
(%)
Capital Cost (costurile de oportunitate ale capitalului investit
in stocuri-randamentul in investitii alternative de risc
12%
apropiat sau dobanda de imprumut a capitalului investit in
stocuri)
Storage space (amortizare (spatiu propriu), inchiriere,
intretinere, utilitati, extra cost manipulare stocuri speciale: 2%
perisabile, toxice, inflamabile)
Inventory service (cheltuieli cu forta de munca pentru
3%
manipularea fizica a produselor, asigurare, impozite, paza)
Inventory Risk Cost (depreciere, deteriorare, uzura morala,
8%
furturi, incendii, pierderi, relocare)
25 %
Total din valoarea medie
anuala a stocurilor
18
The rule of thumb for inventory carrying cost is between 15% and 30%.
 The Impact of the K* Factor on Profit Items Sold
Case Study: Demonstrating the impact of the K factor on items sold at a profit brut after
remaining in stock for long periods of time
Assumptions: K*= Carrying Cost Rate
• 720 pairs of earmuffs (antifoane externe) purchased at $2.25 per pair ($1,620 original cost)
• Earmuffs have remained unsold for 2 years Valoarea initiala de achizitie
• We hope to sell at a 30% gross profit per pair ($2.93 pair) = 720*2.25 = 1.620 USD.
• 25% K factor (ponderea costurilor anuale de stocare in valoarea medie anuala a stocurilor)
Pret de achizitie= 2.25 USD
$1,620 x 25% = $405 per year in carrying cost
Pret de vanzare = 2.93USD
$405 ÷ 720 pairs = 56¢ per year, per pair in additional carrying cost expense
Additional cost after one year:
$2.25 + $0.56 = $2.81/pair (720 pairs x $2.81/pair = $2,023)
Additional cost after two years:
$2.81 + $0.56 = $3.37/pair (720 pairs x $3.37/pair = $2,426)
Costs are going up $0.002 per day ($0.56 ÷ 365 days/yr)
$2.93 sales price –2.25 original cost = $0.68 gross profit expected; $0.68 ÷ $0.002 = breakeven
at 340 days—after 340 days there is no profit at all!
Revenue from selling earmuffs at $2.93/pair: $2,110 ($2.93/pair x 720 pairs).
Profit or loss after keeping the products in stock for two years:
$2.426-$2110=-$316
Inventory and Cost Information for Computer Hard Disks
Costul anual al comenzilor
(Annual Order Cost): 52*$200=$10.400

Vanzarea medie saptamanala= 100 buc Carrying cost (costul de stocare) : 25% din
Costul de lansare a unei comenzi=200$ valarea unui produs stocat pe 1 an de zile
Pret de achizitie 100$/buc
*Stocul mediu anual (Average Inventory)= Q/2, Costul anual de stocare (Total Annual
unde Q= 100 buc si reprezinta cantitatea Carrying Cost$): 0.25*$100*50=$1.250
comandata necesara pentru a onora o cerere
medie saptamanala de 100 buc. 20
 3. Stockout Costs

Stockout Costs (costuri de penalizare, costul de penurie sau costul rupturii de

stoc): the costs of not having sufficient inventory.
– Lost sales and profit, (valoarea vanzarilor nerealizate)
– Expediting and back ordering expenses, (cheltuieli suplimentare cu cererea neonorata:
comanda aprovizionare , manipulare, ambalare, expediţie, etc)
– Cost of reputation and goodwill (lost customers on long terms)
– Cheltuieli de penalizare (nerespectarea clauzelor comerciale)
– Costurile cu lipsa materiilor prime (sau piese de schimb) ce afectează procesul si
costurile de producţie.
CS = (NDOS x AUSPD x PPU) + CC
Where,
52% dintre cumpărătorii
CS = Cost of a Stockout online abandonează coșul de
cumpărături atunci când un
NDOS = Number of Days Out of Stock produs pe care îl doresc nu
AUSPD = Average Units Sold Per Day se află pe stoc

PPU = Price Per Unit (some use Profit Per Unit)

CC = Cost of Consequences
 Inventory’s Conflicting Cost Patterns
Interpretare: comenzi mai rare prin cresterea cantitatilor pe o comanda
conduc la: reducerea costurilor pe comanda(ordering cost), a costurilor
datorate rupturilor de stoc (stockout cost) deoarece stocul este mai mare
decat cererea dar si la cresterea costurilor de gestiune (carrying cost).

Total cost Minimum cost

reorder quantity
Cost

Ordering cost

Stockout cost

Order (Replenishment) quantity Source: CR (2004) Prentice Hall, Inc.

 Inventory Management Problems
Uncertainty in inventory management

• Inventory policy must deal with uncertainty

– Purchasing cycle uncertainty — how long will it
take to replenish inventory with our customers?
– Demand uncertainty — when and how much
product will our customers order?
• Variations must be considered in both areas to
make effective inventory planning decisions
• Use normal distribution to manage variations
Both two factors are subject to uncertainties:
• demand variations: customer behaviors can evolve in rather unpredictable ways.
• lead time variations: suppliers or transporters may be faced with unplanned
difficulties.

Lead time (timpul de reaprovizionare ) = supplier or manufacturing lead time + time to

initiate the purchase order or work order including approval steps + time to notify the
supplier + the time to process through receiving and any inspection operations.

Example: Demand Variation

 Methods for inventory reduction
- Reduce supply lead times variability -
Measure supplier lead time performance and put the
information to work

Lead time is a major

factor in determining
inventory levels
– Supplier lead time
variability influences
required safety stock level
– Measurement of actual
lead time performance
helps ensure adequate
buffer for supply variability
– Measurement key for
driving support actions to
improve lead time and
reduce variability
 Purchasing cycle uncertainty means operations cannot
assume consistent delivery

x–x 2
(x – x)

Calculation of Standard Deviation of Replenishment Cycle Duration

N=∑Fi=50 2
S (x - x)
s= n
Calculul medianei (punctul central al seriei):
a) Se sorteaza crescător/descrescător sirul de numere
b) Pentru o serie cu numere pare, D=media valorile care se gasesc pe locurile din mijlocul
seriei
c) Pentru o serie cu numere impare, D se afla in serie pe pozitia (n+1/2). In cazul nostru
avem n=9 si deci media este 10, adica numarul de pe pozitia 10/2=5.
 Purchasing cycle variation analysis
using a normal distribution
σ =deviația standard
If σ = 2 we should expect:

68% of the supplier’s deliveries

to be between 8 -12 days

98% of the supplier’s deliveries

to be between 6 -14 days

99.88% of supplier’s deliveries

to be between 4 – 16 days

Analysis of supplier’s deliveries History Normal Distribution

Interpretare statistica: termenele de aprovizionare reale se afla in intervalul +/- 1 sigma in
proportie de aproximativ 68%, in +/- 2 sigma aprox. 95.5% si in +/- 3 sigma in aprox.
99,73% din cazuri
 Methods for inventory reduction
- Reduce supply lead times -
Lead time is a major factor in More Frequent Orders, Smaller Order Quantity
determining inventory levels

– Aggressively reduce lead time Q

as the best offset
(compensatie) to imperfect
forecasting
– Changes in lead time often do
not get updated in planning Ss
systems
Remarks. Smaller more frequent
orders result in lower average
inventory, but can increase other
additional costs (order cost,
transportation cost, warehousing
cost, etc). See also, JIT.
Stoc mediu = cantitatea comandata/2+Ss.
Average inventory=((Q+Ss)+Ss)/2=(Q+2Ss)/2=
Q/2+Ss

Pentru furnizorii situati la distanta mica, negociati reducerea intervalului de aprovizionare

si a volumului comenzilor de aprovizionare pentru reducerea stocurilor.
 Inventory Definitions:
More Frequent Orders, Smaller Order Quantity
Demand=10 pc’s/day – cererea zilnica= 10 buc
The 10-day order Orders – se comanda la 10 zile
Order (ciclul comenzi)
Q=Reorder point Q-comanda de reaprovizionare
for 100 products Arrives
Average
Inventory
100
(Stocul mediu)
Stoc
(buc) 50 products

0
10 20 30 40
Interval de timp aprovizionare (Zile)

Pentru comanda la 10 zile, Q=10*10=100buc, Stocul mediu =Q /2+Ss= 100/2+0=50 buc

Pentru comanda la 5 zile, Q=5*10=50buc, Stocul mediu= Q/2+Ss=50/2+0=25 buc.

Ss= stoc siguranta
 Methods for inventory reduction
- Reduce demand variability by segment strategy definitions to
make improvements of forecasting -
Inventory management practices for Inventory
Segmentation

• Definirea segmentelor: Product/market classification groups

products, markets, or customers with similar characteristics to
facilitate inventory management
– E.g. classify by sales, profit contribution, inventory value, usage rate or
item category
• Definirea strategiei de management al stocurilor pentru fiecare
segment. Segment strategy definition specifies all aspects of
inventory management process for each segment of inventory
– E.g. service objectives, forecasting method, management technique, and
review cycle
• Policies and parameters must be defined at a detailed level
– E.g. data requirements, software applications, performance objectives,
and decision guidelines

Segmentarea produselor din stoc imbunatateste acuratetea prognozei produselor cu

cerere variabila si creste implicit gradul de onorare a comenzilor clientilor.
 Reduce demand variability
by Segment strategy definitions

Supply Chain: No “One Size Fits All”

Not all SKUs are the same, not all orders are the
same and not all vendors are the same. Therefore,
your supply chain cannot be a “one size fits all”
model. In summary, to design a Supply Chain able
to provide an optimal cost solution to meet
customers requirements understand your supply
and demand variability so you can manage it.
, Market, Distribution Chanel

Forecast principle:
1. Forecasts are (almost) always wrongs.
2. Forecasts are more accurate for groups
than for single items – Risk pooling
Anterior gruparii produselor, consolidati
cererile clientilor pentru aceleasi produse
si apoi efectuati prognoza, nu efectuati
mai intai prognozele cererilor de produse
pe fiecare client si apoi insumati
prognozele.
Pentru prognoza pe perioade mari de
timp, grupati mai intai produsele pe
diverse criterii si apoi efectuati prognoza
pe grupele de produse obtinute. In final,
dezagregati prognozele efectuate pe
grupe de produse in prognoze individuale
de produse folosind istoricul vanzarilor.
3. Forecasts for near-term demand are more
accurate than long term forecasts.
 Inventory based on product clasification
• Niveluri terapeutice
Segmentarea produselor
Categorii de produse
SKU stratification (A/B/C) is difficult in a fashion business (get in, get out model)
 ABC Inventory Management
It is a common rule of thumb in business; e.g., "80% of your sales come from 20% of
your clients/products".
Based on “Pareto” concept (80/20 rule) divides on-hand inventory into 3 items
classes according to their respective sales volume.
Each category is then assigned its own service level.

A typical ABC partition goes as follows:

- A class: 20% of SKUs, 80% of value - classified as “Critical few”: high service level,
e.g. 96-98%,
- B class: 30 % of SKUs, 15% of value- classified as “Interclass”: medium service level,
e.g. 91-95%
- C class: 50 % of SKUs, 5% of value - classified as “trivial many”: lower service level,
e.g. 85-90%
– Percents are approximate.

Policies based on ABC analysis

- Develop class A suppliers more
- Give tighter physical control of A items
- Forecast A items more carefully

Danger: Value use may not reflect importance of any given SKU! 36
 Example of SKU* list for 10 items
Percentage of
Annual Sales Annual Sales Total EURO
Item Units Unit Price Euro Sales
1 5,000 € 1.50 € 7,500 2.9%
2 1,500 8.00 12,000 4.7%
3 10,000 10.50 105,000 41.2%
4 6,000 2.00 12,000 4.7%
5 7,500 0.50 3,750 1.5%
6 6,000 13.60 81,600 32.0%
7 5,000 0.75 3,750 1.5%
8 4,500 1.25 5,625 2.2%
9 7,000 2.50 17,500 6.9%
10 3,000 2.00 6,000 2.4%
Total € 254,725 100.0%

*SKU – it is an abbreviation for the term stock-keeping-unit that identifies an

item being in the inventory at a stocking location. 37
 ABC Chart for SKU List

C
A B Percentage
Annual Sales Annual of Total Cumulative
in Units Unit Price Sales EURO EURO Sales Percentage
10,000 10.50 105,000 41.2% 41.2%
6,000 13.60 81,600 32.0% 73.3%
7,000 2.50 17,500 6.9% 80.1%
1,500 8.00 12,000 4.7% 84.8%
6,000 2.00 12,000 4.7% 89.5%
5,000 € 1.50 € 7,500 2.9% 92.5%
3,000 2.00 6,000 2.4% 94.8%
4,500 1.25 5,625 2.2% 97.1%
7,500 0.50 3,750 1.5% 98.5%
5,000 0.75 3,750 1.5% 100.0%
€ 254,725 100.0%
38
 ABC Chart for SKU List
45.0% 120.0%

40.0%
100.0%

Cumulative % Sales
35.0% A B C
Percent Sales

30.0% 80.0%

25.0%
60.0%
20.0%

15.0% 40.0%

10.0%
20.0%
5.0%

0.0% 0.0%
3 6 9 2 4 1 10 8 5 7

Item No.

Percentage of Total EURO Sales

39
 Methods for inventory reduction
Risk Factors Analysis for Effective
Stock Management

Analysis of risk factors that can influence efficient

inventory management:

• Procurement lead time: the risk of unavailability of items in

stock increases with the supply period, so the lack of article in
stock for those with a shorter supply is less risky than those with a
longer supply.
• Supplier: items purchased from local suppliers are less critical
than those supplied from international sources.
• Product customization: an article that is highly personalized
has a higher supply risk than a standardized one.
• Unavailability - the consequences of the unavailability of a
product.
 Sample illustrating segment strategy
definitions
(service objectives, forecasting method, management technique, and review cycle)

CPFR- a supplier – buyer partnership for planning and forecasting market demand
DRP – Distribution Resources Planning a method used for inventory allocation in a
supply chain
 Risks factors for VED analysis
Use the risk factors for estimating an item’s criticality
(VED* analysis). *VED-Vital, Essential, Desirable

Intrerupe
productia
 Selective Inventory Control Techniques
Table below shows the categorization plans for the sample
of items.
 Segmentation in Supply Chain
-Inventory segmentation based on
customer service -

• Customer who requires a custom part from manufacturer

low volume high variability (Pull model, make to order)
• Customer who requires a commodity high volume, low
variability - (Push model, make to stock)
• Customer who permit backorder (after market products vs.
the same products used in making other products-
production)
Corelația volum - variabilitate cerere
 Segmentation in Supply Chain using Channel Segmentation
-Segmentarea pe canale de distributie-
For example, a high-tech consumer electronics company typically
deals with multiple channels:
– retail,
– distributor,
– Enterprise customers
– Web customers
Each of these channels should have different replenishment programs.
Example:
• Enterprise customers might be served through a combination of
configure-to-order and build-to-stock strategies (Push-Pull).
• Retail customers, meanwhile, could be served through build-to-
stock along with a combination of distribution resource planning
(DRP); vendor-managed inventory (VMI); collaborative planning,
forecasting, and replenishment (CPFR); point-of-sale (POS),
analytics-driven collaboration.

The type of replenishment relationship between a manufacturer

and a giant, big-box retail chain will be different than that with
smaller retailers.
 - Methods for inventory reduction -
Periodic review to identify slow-moving and obsolete
products (SLOB) – decide selling strategies
Analiza calitatii stocurilor – decizii referitoare la
strategia de vanzare stocurilor

• Analizati periodic calitatea stocurilor (viteza de rotatie

si vechime) pentru:
– Elaborarea propunerilor de valorificare a acestora
(vanzari, donatii, etc) catre departamentului de
marketing si vanzari
– Analiza cauza-efect stocuri in exces si rupturi de
stocuri, elaborare de actiuni corective
 Analiza calitatii stocurilor pe baza vitezei de rotatie*
Evolutia lunara a stocurilor (valori absolute)

*Retailers generally want higher inventory turns, which indicate that they can support
the same level of sales with less inventory.
Analiza calitatii stocurilor pe baza vitezei de rotatie
Evolutia lunara a stocului (valori relative)
Analiza Calitate stocuri - metoda vitezei de rotație-
Oferta speciala pentru vanzarea produselor cu
mișcare lentă
 Analiza calitatii stocurilor pe baza vechimii
(termene de expirare)

Analiza detaliata pe produse va extrage oferta de vanzare a produselor cu termene de

expirare apropiate
 Masuri Urgente Valorificare Stoc
-dupa aplicarea analizei calitatii stocurilor-
 Evaluarea calitatii stocurilor prin
analiza cauza –efect

Cauzele care produc exces de stoc Cauzele care produc ruptura de stoc
Minimum order quantities drive to higher
inventory levels (excess stock)
• Minimum Order Quantities (MOQ)
on low volume items may require
you to order more than an
“optimal” quantity
• Items with high MOQ can lead to
excess on-hand inventory…
• …but the order frequency is greatly
reduced resulting in fewer
“exposures” to the minimum stock
level and fewer potential stock-outs
• Safety stocks based on the lower
volume orders should not be
applied to high MOQ items
• High MOQ items can be planned
with lower relative safety stocks
without impacting fill rates over the
long term
 Methods for inventory reduction
Use Push-Pull Strategy
To reduce inventory level
Make to Order by Postponement strategy (diferentierea
produsului se amana pana la lansarea cererii clientului cand se
vor cunoaste specificatiilor finale ale produsului).
Postponement - personalizare cat mai tarzie a produsului

Determine how much inventory to carry in semifinished mode or

as components to help offset higher demand variability or to
reduce costs for products that have different service
requirements.
A push-pull strategy: the manufacturer builds to order. This
implies that component inventory is managed based on forecast
(push-based), but final assembly is in response to a specific
customer request (pull-based). This push-pull boundary is at the
beginning of assembly.
Choosing Between Push/Pull Strategies – Appropriate Supply Chain

Pull High Industries where: Where do the following

Industries where: industries fit in this
• Customization is High • Demand is uncertain model:
• Demand is uncertain • Scale economies are High
Demand Uncertainty

• Scale economies are Low • Automobile?

Computer
equipment
Industries where:
• Uncertainty is low
• Low economies of scale
• Push-pull supply chain
Furniture
Industries where:
• Standard processes are the
norm
• Demand is stable
• Scale economies are High
• Aircraft?
• Fashion?
• Petroleum refining?
• Pharmaceuticals?
• Biotechnology?
• Medical Devices?

Books, CD’s Grocery,

Push Low Beverages
Low Economies of Scale High
Minimizarea costurilor prin
Pull cresterea volumului de marfa
Push
9 April 2021 57
Source: Simchi-Levi
transportata/maniplulata
 SUPPLY CHAIN MANAGEMENT SYSTEMS
Primarily, the supply of material through a system is governed by two
alternative approaches called pull-based system and push-based system.

Push versus Pull-Based Supply Chain Models

 Push-Pull Supply Chain

“Generic” Product “Customized” Product

• A typical push system: PC manufacturers who build to stock and make all
production and distribution decisions based on forecast.
• A push-pull strategy: the manufacturer builds to order. This implies that
component inventory is managed based on forecast (push-based), but final
assembly is in response to a specific customer request (pull-based). This
push-pull boundary is at the beginning of assembly.
• The interface between the push-based stages and the pull-based stages is
known as the push-pull boundary.
 Methods for inventory reduction
- Reduce safety stock levels -

Pool safety stock for multiple locations

Inventory positioning across the supply chain – where you keep the inventory in
the supply chain can make a big difference.
 Methods for inventory reduction
-Inventory Record Accuracy-
• Inaccurate inventory records can cause:
– Lost sales
– Disrupted operations
– Poor customer service
– Lower productivity
– Planning errors and expediting

• Methods available for keeping record accuracy

Counting
– Periodic counting-physical inventory (inventarierea anuala)
– Cycle counting-daily counting of pre-specified items provides the
following advantages (Inventarierea ad-hoc sau Inventarierea zilnica
selectiva):
• Timely detection and correction of inaccurate records
• Elimination of lost production time due to unexpected stock outs
• Structured approach using employees trained in cycle counting
Automation Technology - when you are working with high-value
items
By ex. RFID may be a better solution for your facility, the RFID readers
61 capture a 100% accurate count of any item in the warehouse.
 Inventory Accuracy using WMS

The Warehouse Management System (WMS)

component have to support the following inventory
methods:
– Annual inventory count (also called periodic
inventory)
– Continuous inventory
– Continuous inventory during stock placement
– Continuous inventory based on zero stock check
– Cycle counting
– Inventory sampling
– Adhoc (Select and Count)
– Quant (A single material # in mixed storage bin)
 WMS - Annual Inventory

You use this inventory method for storage types, for

example, for which the continuous inventory method
should not be used. You can also use this method to
take an inventory of the storage bins and bin
quantities that are normally subject to a continuous
inventory method but had no movement in the
current fiscal year.
 WMS - Continuous Inventory
With the continuous inventory method you take inventory on a
selected number of storage bins in a storage type. The inventory
can take place at any time during the fiscal year.

– The effort for the inventory is not concentrated on a certain day

or days but is distributed over the entire year. This can result in
a better leveling of the workload in the warehouse.
– Inventory can be conducted during slow times in the
warehouse, for example, during summer vacation.
– When an inventory is carried out on a continuous basis, up-to-
date information about the correspondence between the
warehouse stock and the book inventory is always available.
 WMS- Cycle Counting
Cycle counting in the Warehouse Management System
(WMS) component makes it possible for you to
separate materials into classes (such as A, B, C...) and
take inventory for each class separately several times
throughout the year.
Cycle counts should never close the store.
Assign a section of the store to an employee. Make
one person accountable for an area.
 Cycle Counting Example

A distribution company wishes to count A

items 4 times per year, B items 2 times
per year, and C items 1 time per year.
There are 500 A items, 3,500 B items, and
11,000 C items. Plan a cycle counting
procedure.

66
 Cycle Counting Example
Number Count Number of Per Counts per
Class of Items Frequency Counts Cent Day
8
A 500 4 2,000 10% (2,000/250)

B 3,500 2 7,000 35% 28

C 11,000 1 11,000 55% 44

Totals 15,000 20,000 100% 80

Note: Daily Count = 2000 / 250 = 8, where 250= no of working days

67
 Methods for inventory reduction
Supply Contracts Indicatori:
Gross Profit: Marja bruta sau
Marja comerciala = MC
Revenue: Venituri din vanzari
(V)
Cost of goods sold : Costul
marfii vandute (C)
MC=V-C
Rata MC (%)=(V-C)/V*100
(profitabilitatea-greater cash
flow)
Markup: Adaos Comercial
(AC)
In valoare absoluta: AC=MC
In procente: Rata AC(%)= (V-
C)/C*100
Rata AC: % din costul de
achizitie pe care il adaugi la C
pentru a obtine pretul de
vanzare V.
 Supply Contracts
Buyers and suppliers typically agree on supply contracts

• Contracts address issues that arise

between a buyer and a supplier
• Buyers and suppliers may agree on
– Pricing and volume discounts
– Minimum and maximum purchase
quantities
– Delivery lead time
– Product or material quality
– Product return policies - the best
time to negotiate the terms for the
return of product with a vendor is
before you agree to take on a new
product line or place a very large
purchase order. The most
commonly used return policy is full
return for partial credit, which is
widely acknowledged as the
Buyback Contract .

• Supply contracts are very powerful

tools that can be used for far more
than to ensure adequate supply of,
and demand for, goods
• Supply Contracts – Risk Sharing
A variety of supply contracts will allow for risk sharing, and
increase profits across the SC
• Buy-back contracts
• Revenue-sharing contracts
• Quantity-flexibility contracts
• Sales rebate contracts (manufacturer offers a rebate to all who
purchase its product, such as tickets or coupon).
• Global Optimization
 Methods for inventory reduction
Strategic Alliances
• Collaborative Inventory Replenishment
– Quick Response (QR)
– Collaborative planning, forecasting, and replenishment (CPFR)
– Vendor Managed Inventory (VMI)
– Just in Time (JIT)

Retailer-Supplier Relationships - RSP

• Cooperative relationship between suppliers and retailers to

use one another’s knowledge
• Suppliers have better knowledge of lead times and
production capacities
• Retailers have better knowledge of demands
 Types of RSP
Quick Response Strategy
• Suppliers receive POS data from retailers
• Suppliers use this information to synchronize
their production and inventory activities with
actual sales at the retailer.
• Retailers still prepare individual orders
• POS data are used by suppliers to improve
forecasting and scheduling and to reduce lead
time
 Types of RSP
Vendor Managed System (VMI)
Also called vendor-managed replenishment (VMR) system
• Supplier decides on the appropriate inventory levels and the appropriate
inventory policies to maintain these levels.
• Supplier suggestions initially approved by retailer
• Goal of many VMI programs is to eliminate retailer oversight on specific
orders.
• Wal-Mart and Procter & Gamble VMI
– Partnership, begun in 1985
– Has improved P&G’s on-time deliveries to Wal-Mart while increasing
inventory turns

Advanced form of VMI: Supplier co-location or JIT II

– No longer referred to as JIT II
– Supplier’s employee is officced in buyer’s purchasing department to
forecast demand, monitor inventory & place orders with access to
sensitive files & records
 VMI – Vendor Managed Inventory
Strategies to combat the bullwhip
effect
RSP - Retailer
Supplier
Relationships

Vendor Managed Inventory (VMI) : vendors/suppliers are

responsible for replenishment / inventory service level of
customers
9 April 2021 74
 Virtual Stock Management
RSP-Retailer Supplier Relationships

Strategies to combat the bullwhip

effect

Remarks: Companies moving more and more towards centralized inventory planning
and away from decentralization of planning activities
9 April 2021 75
 RSP Requirements
• Presence of advanced information systems
• Top management commitment
– Especially because information will be shared
across companies
• A level of trust among partners
– Supplier manages retailer’s inventory
– Retailer provides sales and inventories
information to supplier
– Reduced inventory leads to space savings
• Should not be given to competitors
 RSP Inventory Ownership

• Who makes the replenishment decisions?

• Who owns the inventory until it is sold?

– Consignment relationship in VMI programs
• Supplier owns the inventory until it is sold
Methods for inventory reduction
Encourage more vendor
consignment stock
Produse in Consignatie/Custodie
Consignee- Beneficiar ; Consignor-furnizor
 Methods for inventory reduction
Reduce Tranzit Inventory
Stocul in Tranzit
• Bunuri care au fost livrate de catre vanzator dar nu au ajuns inca la cumparator.
• Bunurile trebuiesc inregistrate, in acest caz, in posesia uneia din cele 2 parti: vanzator
sau cumparator in functie de termenii si conditiile generale ale vanzarii. Conform
standardelor IFRS stocurile pot reprezenta un activ al entitatii numai daca si
compania are control asupra respectivului stoc.
Controlul asupra stocurilor este asimilat cu dreptul de proprietate.

• In termeni generali produsele vor fi incluse in stocurile partii care este responsabila
cu costurile de transport. Aceasta responsabilitate este mentionata in termenii de
livrare ai vanzarii cum ar fi: FOB, FAS, CIF, etc.

In momentul in care are loc transferul titlului legal, riscurile si beneficiile legate de
stocuri trec de la vanzator la cumparator.

Example Problem
Delivery of goods from a supplier is in transit for 10 days. If the annual demand is
5200 units, what is the average annual inventory in transit (IIT)?
ANSWER
IIT=(10*5200)/365=142.5 units inventory in transit.
 Goods in Tranzit
-Produse in Tranzit – exemplu pentru livrare FOB
Una dintre erorile care se fac in privinta stocurilor este de a
considera ca titlul de proprietate asupra stocurilor este identic
cu posesia fizica a stocurilor.
 Methods for inventory reduction
Change the safety stock service level
• Change the safety stock service level from 98%
(or where ever you have it) to 95%. Example:
Example:
What is the service level for an item with annual demand
of 25,000 units and an order quantity of 5,000 units?
Management will tolerate only 1 order stockout per year.
What if the order
N= 25,000 / 5,000 = 5 Quantity was
1,000?

Service Level = 5 – 1 x 100% = 80%

96%
5
 Use the return rate to plane the stock
volume
Returns - How do returns matter?
• Because some portion of your returns will inevitably
become part of your inventory again and can be sold
again. If you have a 10% return rate (not uncommon in
consumer goods businesses with customer-friendly
return policies), then this needs to be factored into your
planning. If 10% of your products come back (for
whatever reason), it will significantly impact your
inventory management.
• One modern-day alternative to dealing with it all
yourself and in-house is using a specialist returns vendor,
who will take your returns and sell them for you.
 Inventory
Key Performance Indicators
(KPI)
 Measure to manage your inventory
• Inventory vs. targets: It should be possible to
break down the SKU into various segments, like
ABC classification, make vs. buy parts, or by
categories specific to your organization. This will
help you understand the driving forces behind
the data trends and identify key opportunities.
It’s also important to understand what portion of
your inventory is active, slow-moving, excess,
and obsolete. I recommend the inventory quality
ratio for this one. Depending on your industry, it •
can also be valuable to understand your
inventory picture by customer or by supplier.
• Customer service level vs. targets: Your big
investment in inventory has one purpose: to
provide your customers with exceptional service.
It’s important to understand the relationship
between your inventory levels and customer
service levels. Your targets should be high
enough to satisfy your customers without being
too high that it cuts into your margins by driving
your inventory up. I’d consider graphing this as a
% variance from target as the first thing most
people would do is a comparison between the
actual and target lines anyways. Another way to
look at this would be to measure stock-out
performance.
• Total Inventory Cost:
• Cash-to-cash cycle time: This can be
thought of as a measurement of how long it
takes for your inventory investment to pay
itself back with a profit. The shorter the
cycle time, the more often you collect.
Measure your input processes: It’s
impossible for an inventory manager to
succeed unless he understands the
performance of all the upstream processes.
Inventory records accuracy, supply action
management, quality, supply variability,
and engineering change management all
play an important role in keeping the
organization on track with the inventory
plan. The inventory manager needs to
know where he needs to collaborate with
other managers to keep his plan on the
rails.
 Inventory Performance Measures
A Company has annual cost of goods sold of $10,000,000. The average inventory value at any
point in time is $384,615. Calculate inventory turnover and weeks/days of supply.
• Inventory Turnover:
annual cost of goods sold $10,000,000
Turnover    26 turns
average inventory value $384,615
Stock turns in businesses are different such as spare parts will be very low, say 1-3 times per
year, in an FMCG business can be as high as 20 to 30 times per year.
Viteza de rotatie in zile: 365/Inventory Turnover – arata numarul mediu de zile in care
produsul sta in depozit sau Days of Supply.
• Weeks/Days of Supply :
average inventory value $384,615
Weeks of Supply    2 weeks(14 days)
average weekly COGS $10,000,000/52
$384,615 Obs. Viteza de rotatie este mai mica
Day s of Sup p ly   10 day sin cazul utilizarii numarului de zile
$10,000,000 / 260 lucratoare ale perioadei, respectiv
10 days vs. 14 days
COGS- costul bunurilor vandute la pretul de achizitie (RON)
Average inventory value – valoare medie stoc=(stoc initial+n*stoc final perioada)/n+1 (RON/luna)
n=numar de perioade (luni, saptamani, etc)
260=nr zile lucratoare=52*5 zile 85
 Inventory Turnover Remarks
• Viteza de rotatie se calculeaza pe o serie de 1 an de zile
pentru nivelarea trendului si a sezonalitatii din seria de
date.
• Viteza de rotatie depinde si de lungimea perioadei de
reaprovizionare. De aceea, in cazul analizelor detaliate
calculati viteza de rotatie in mai multe moduri:
– Viteza de rotatie a produselor fabricate intern
– Viteza de rotatie a produselor achizitionate de pe piata
interna (domestica)
– Viteza de rotatie a produselor achizionate din import
Deoarece timpul de aprovizionare influenteaza nivelul stocului,
se va observa ca produsele din import care au cel mai lung
timp de reaprovizionare vor avea o viteza de rotatie mai
mica.
 Days of Supply
How to Assess Inventory Stock Status
-the simplest way-
• Days of Supply of on-hand inventory = (On-hand Inventory /
Average monthly demand) x 22 working days
Monthly Demand
April 1,250
May 1,364
June 1,255
Total 3,869
Average monthly demand: 3,869 : 3 (three months of data)= 1,290
On-hand Inventory stock = 3,000
Months of on-hand inventory=3,000:1,290 = 2.3 months of stock on hand
Days of Supply=2.3x22=50.6 zile vanzare
Concluzia: stocul disponibil asigura 50.6 zile vanzare.

Stock turns in some businesses such as spare parts will be very low, say 1-3 times per
annum. Whereas stock turns in an FMCG business can be as high as 20 to 30 times per
year.
Viteza de rotatie a stocurilor in zile
Inventory stock status evaluation
 Cash-to-cash cycle time - impacting Working capital
Ciclul fluxului de numerar.

A financial ratio showing for how long a company has to finance its own stock/inventory. It is
calculated : stock days + debtor days - creditor days.
Example: A company which keeps its stock for on average of 20 days, which gets paid by its
debtors on average within 30 days and which pays its creditors on average within 45 days,
has a cash-to-cash cycle of 5 days. Companies that receive cash from their customers at the
time of sale and that have their stock under good control, will have a short cash-to-cash cycle
 Fill Rate part of Perfect Order
(Gradul de onorare a comenzilor)
• Item Fill Rate
• The item fill rate is the ratio of the total number of items shipped divided by the total
number of items ordered. The line item fill rate measures the percentage of line
items on the order shipped in their entirety. Finally, the order fill rate is a measure of
the percentage of orders shipped completely.

•
• Benchmarking Values:

• To illustrate these fill rate measures, consider the order in the exhibit. First, there are
a total of 5036 items on this order. Since 4817 of the items were shipped, the item
fill rate is
• Item Fill Rate = 4817/5036 = 95.6 %
• A more strict measure is the line item fill rate. There are 10 lines of items ordered,
and of these 10 line items, only 5 of them were filled in their entirety, thus the line
item fill rate is Line Item Fill Rate = 5/10 = 50% (Nr. Linii livrate integral/Nr. Total linii
livrate)
• Finally, the order fill rate is the percentage of orders filled completely. Clearly, this
order counts in the unfilled category. This measure is probably the strictest of the
three measures of customer service fill rates discussed above