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PRESENTED BY: BHUSHAN PAWAR HARDEEP SINGH
Logistics information systems are the threads that link logistics
activities into an integrated process.
The integration builds on four levels of functionality:
• Transaction • Management control • Decision analysis • Strategic planning
INFORMATION FUNCTIONALITY .
PRINCIPLES OF LOGISTICS INFORMATION §A va i a b i i l l ty §A ccu ra cy §Ti e l n e ss m i §E xce p ti n b a se d LI o S §Fl b i i exi l ty §A p p ro p ri te fo rm a t a .
• Forecast approaches. . • Forecast components.GENERAL FORECAST CONSIDERATIONS • The nature of demand.
THE FORECAST PROCESS FORECAST PROCESS FORECAST DATABASE FORECAST USERS Forecast administration Forecast technique Forecas t support system .
Contd……. • Forecast technique. • Forecast administration. • Forecast support system. .
CRITERIA FOR EVALUATING THE TECHNIQUES • Accuracy • The forecast time horizon • The value of forecasting • The availability of data • The type of data pattern • The experience of the forecaster .
FORECAST TECHNIQUES QUALITATIV E TECHNIQUES TIME SERIE S CASUAL TECHNIQUE S .
• Require little historical data and much managerial judgement.A) QUALITATIVE TECHNIQUES • Rely heavily on expertise. • Developed using surveys. . panels and consensus meetings. • Quite costly and time consuming.
• Exponential smoothing.B) TIME SERIES TECHNIQUES • Moving average. • Extended smoothing. • Adaptive smoothing. .
C) CASUAL TECHNIQUES .
FORECAST ERROR MATRIX .
• Measurement level. . • Feedback.FORECAST ERROR • Error measurement.
10/26/10 19 . held available in stock by a business.Inventory Definition • A stock of items held to meet future demand • Inventory is a list for goods and materials. or those goods and materials themselves.
Types of Inventory Wor k in proc ess Wor k in proc ess Vendors Raw Mate rials Wor k in proc ess Finis hed good s Customer 10/26/10 20 .
Nature of Inventories • Raw Materials – Basic inputs that are converted into finished product through the manufacturing process • Work-in-progress – Semimanufactured products need some more works before they become finished goods for sale • Finished Goods – Completely manufactured products ready for sale • Supplies – Office and plant cleaning materials not directly enter production but are necessary for production 10/26/10 21 .
Objective of Inventory Management • To maintain a optimum size of inventory for efficient and smooth production and sales operations • To maintain a minimum investment in inventories to maximize the profitability • Effort should be made to place an order at the right time with right source to acquire the right quantity at the right price and right quality 10/26/10 22 .
and efficient customer service • Minimize the carrying cost and time • Control investment in inventories and keep it at an optimum level 10/26/10 23 .An effective inventory management should • Ensure a continuous supply of raw materials to facilitate uninterrupted production • Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes • Maintain sufficient finished goods inventory for smooth sales operation.
inspecting and storing • Quality control • Clerical and staff Stock-out cost • Loss of sale • Failure to meet delivery commitments Carrying costs:• Warehousing or storage • Handling • Clerical and staff • Insurance • Interest • Deterioration.shrinkage.An optimum inventory level involves three types of costs Ordering costs:• Quotation or tendering • Requisitioning • Order placing • Transportation • Receiving. evaporation and obsolescence • Taxes • Cost of capital • 10/26/10 24 .
difficult to convert into cash • Physical deterioration of inventories while in storage due to mishandling and improper storage facilities 10/26/10 25 .Dangers of Over investment • Unnecessary tie-up of firm’s fund and loss of profit – involves opportunity cost • Excessive carrying cost • Risk of liquidity.
Dangers of underinvestment • Production hold-ups – loss of labor hours • Failure to meet delivery commitments • Customers may shift to competitors which will amount to a permanent loss to the firm • May affect the goodwill and image of the firm • 10/26/10 26 .
Classification of inventory ABC Classification HML Classification XYZ Classification VED Classification FSN Classification SDF Classification GOLF Classification SOS Classification .
A typical manufacturing operation shows that the top 15% of the line items. represent 80% of total annual rupees usage. Next 15% of items reflect 15% of annual rupees Next 70% accounts only for 5% usage A B C .ABC Classification In most of the cases 10 to 20 % of the inventory account for 70 to 80% of the annual activity. in terms of annual rupees usage.
. • X – High Value • Y – Medium value • Z – Least value Aimed to identify items which are extensively stocked.XYZ Classification • On the basis of value of inventory stored • Whereas ABC was on the basis of value of consumption to value.
M. 5. 10 and 10.000 units of W @ Rs.HML Classification • O n th e b a si o f u n i va l e o f i m s t u te • There is 1000 unit of Q @ Rs. as H – High. L .Medium.Low . A i e d to co n tro lth e p u rch a se o f m ra w m a te ri l .
D – Desirable . E – Essential. V – Vital.VED Classification Mainly for spare parts because their consumption pattern is different from raw materials. Therefore V items has to be stocked more Raw materials on market demand and D Items has to be less stocked Spare parts on performance of plant and machinery.
FSN Classification • According to the consumption pattern • To combat obsolete items • F – Fast moving • S – Slow moving • N – Non Moving .
Difficult. L – Local. E. . GOLF G – Government. D. F – Foreign. O – Ordinary.SDF & GOLF Classification • • • • • Based on source of procurement S – Scarce.Easy.
SOS Classification • Raw materials especially for agriculture units • S – Seasonal • OS – Off seasonal .
Basic EOQ Model Assumption Seasonal fluctuation in demand are ruled out Zero lead time – Time lapsed between purchase order and inventory usage Cost of placing an order and receiving are same and independent of the units ordered Annual cost of carrying the inventory is constant .
EOQ – Three Approaches • • Trial and Error method • Order-formula approach • Graphical approach 10/26/10 36 .
EOQ & Re-order point • • EOQ – gives answer to question “How much to Order” • Re-order point – gives answer to question “when to order” 10/26/10 37 .
5 1200 600 1 600 37.37.5 200 100 6 100 225 325 150 75 8 75 300 375 120 60 10 60 375 435 100 50 12 50 450 500 Order size Q Average inventory Q/2 No.5 312.5 637. of orders C/Q Annual carrying cost I* Q/2 Annual ordering cost O*C/Q Total annual cost 10/26/10 38 .5 600 300 2 300 75 375 400 200 3 200 112.5 307.5 300 150 4 150 150 300 240 120 5 120 187.1 Ordering cost (O) =Rs.Trial & Error Method Assumptions:Annual requirement (C)=1200 units Carrying cost (I) = Rs.
Formula approach 1/2 EOQ =(2CO/I) C = Annual demand O = Ordering cost per order I = Carrying cost per unit 1/2 EOQ =(2*1200*37.5/1) = 300 units 10/26/10 39 .Order.
Here the negative slope from Q to T1 represents the inventory being used up 2.The inventory varies between 0 and Q . T3. T2. T4 represents the replenishment points 3.Certainty case of the inventory cycle Inventory level order quantity Q Average inventory = Q/2 0 T1 T2 Time T3 T4 1.T1.
Graphical method to find EOQ t cos al Tot 2 CQ/ Cost in RS. ng ryi Car t cos = Ordering co st = DS/Q 0 EOQ Order quantity .
were simple calculation for quantity discount is added. • Non zero lead time • Non zero lead time .Extension of basic EOQ model • This model can be extended to include quantity discounts.
n T2 Time T3 . T-n as shown in the figure Q Reorder point 0 T1 .e.n T3 T4 .Extension of basic EOQ model • Non – zero lead time If the lead time is ‘n’ then procurement must be done prior to ‘n’ days.n T1 T2 .n T4 Placement of a order . i.
strikes or natural disaster.Lead time may also fluctuate because of transportation delay.Probabilistic inventory model • In practical inventory management assumption may not be strictly correct. 1. For such reason most of the companies use . cyclical and random influences. 2.Demand may fluctuate over time due to seasonal.
Like:- Reorder point Safety stock T1 Placement of order Lead time T2 T3 T4 T5 T6 Stock out .Probabilistic inventory model contd… • But in some cases even the safety stock becomes ineffective to combat stock out.
Probabilistic model 4. EOQ model 2.Its extension 3.And now we will be dealing with inventory models special .A Review So we have dealt with 1. 5.
Special inventory model • Non – Instantaneous replenishment • • Quantity Discount • • One – period decision .
Special inventory model Non – Instantaneous replenishment Capacity 10 units A B C D Thus the inventory is replenished gradually than in lots Particularly in situation were manufacturers use continues production process e.g. FACT makes Ammonium on a continual basis .
then the price of inventory is no more constant Hence a new approach is needed to find the best lot size Total cost + + cost of materia Annual holding cost Annual ordering cost Annual = .Special inventory model Discount Quantities • If discount increases with the order quantity.
sales opportunity is lost. Applicable to fashion goods. the overage cannot be sold because nobody wants yesterdays newspaper.Special inventory model One period decisions The newsboy problem • If a newspaper seller does not buy enough papers to resell on the street corner. If the seller buys too many. seasonal goods and due to change in technology .
Emerging trends in inventory management Entering into log term contract at a fixed price to reduce uncertainties Just-in-time Kanbans – Japanese technique (Only produce when demand comes) Internet based ordering system Supply chain management Vendor development Investment in plant and machinery .
even to the extend that in some companies the purchasing and stores In effect the responsibility cannot be kept functions are combined. Purchasing naturally has vest interest in inventories. on one head since inventory management Production looks after the work in progress is a integrated effort Logistics plays a major role in inventory control Inventories are economic importance to finance department The fact that materials must be moved from one place to another is of importance to materials department Inventory control responsibility .
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