SUPPLY CHAIN

MANAGEMENT
PROCESS

Presented by: Wilzon A. Vitug

INVENTORY MANAGEMENT AND
STRATEGIC SOURCING
At the end of this lesson, you should be
able to:

Define Define Inventory, Inventory Management, and Strategic Sourcing.

Enumerate the roles of Inventory Management and Strategic Sourcing

Enumerate in Supply Chain Management.

Describe the effects of good and bad Inventory Management and

Describe Strategic Sourcing to Supply Chain Management.
What is
Inventory?
• A stock or store of goods.
• Items that are ready to be sold or
used.
• A physical resource that a firm
holds in stock with the intent of
selling it or transforming it into a
more valuable state.
What is
Inventory?
Assets that are:
• Held for sale in the ordinary course of
business;
• In the process of production for sale;
or
• In the form of materials or supplies to
be consumed in the production
process or in the rendering of services.
Inventory Perspectives
Generally Accepted Accounting Principles (GAAP) Perspective – a current asset or in
the form of work-in-process, raw materials, or finished goods. Can be converted into
revenue (sales); thus, should be properly accounted for in the FS.

Supply Chain Management Perspective – a liability. It should be kept at a bare

minimum—just-in-time, lean, and collaborative planning, forecasting, and
replenishment (CPFR) concepts. Cost to purchase them are high—cash outlay (actual
purchase), holding them, managing them— considered idle money.
Inventory Perspectives

Risk Management Perspective – safety stock, a means of managing and mitigating

risks. To avoid costs and impact of stockouts, missed service opportunities, and
unforeseen supply chain interruptions. Also to hedge currency and price
fluctuations.

Balanced Perspective – the optimal is to maintain adequate inventories to ensure

smooth production and merchandising flows while simultaneously minimizing
inventory investment to ensure firm financial performance.
Purpose of Inventory
Management
• How many to order? When to order?
Discounts?
• Inventories are necessary for operations and contribute
to customer satisfaction
 A typical firm has roughly 30% of its current assets and as
much as 90% of its working capital invested in inventory
Role of Inventory in Supply
Chain Management

1 2 3
Managing customer & Facilitating balance of Testing health of supply
vendor relationships demand and supply chain management—too
much safety stock,
inventory movement.
Inventory Money ($, ¥, £, €, €, ₱)
Costs:
Ordering & Space

Holding Labor (receive, check quality, put away,

retrieve, select, pack, ship, account)

Deterioration, damage, and obsolescence

Theft
The Purpose of Inventory

• Predictability. For capacity planning & production scheduling, need to control how
much raw material, parts, and subassemblies are processed at a given time.
• Fluctuations in demand. Supply of inventory on hand is protection. Constantly
satisfy customers.
• Unreliability of supply. Protection from scarcity of items. Unreliable suppliers
should be rehabilitated or replaced.
• Price protection. Avoid impact of cost inflation.
• Quantity discounts. Bulk orders.
• Lower ordering costs. Large quantities, less frequently.
Types of Inventory

Raw materials – used to produce partial products of

completed good

Finished product – product ready for customer sales.

Work-in-process (WIP) – raw materials are converted

into partial products, subassemblies, and finished
products
Types of Inventory

• Consumables – supplies. Often treated like raw materials

• Service, repair, replacement, and spare items (S&R items) – used to keep things
going; never obsolete until the equipment is used
• Buffer/safety inventory – for uncertain situation.
• Anticipation stock – for an upcoming season
• Transit inventory – en route from one place to another; need to understand paper
life
Strategic
Sourcing
A strategic sourcing process
aims to build supply channels
at the lowest total cost. It is
different from conventional
procurement, where the focus
is on getting the lowest
purchase price
Sourcing
Process
Flow
Creating the business plan

What does your business want to

achieve? What are your prospective
markets? How will you position your
brand? Defining goals, markets and
brand positioning gives a clear direction
to your sourcing strategy.
Selecting the
supplier
Based on your business
plan, identify the type
of suppliers to work
with. Create supplier
selection benchmarks
and send out requests
for quotes.
Negotiating with
suppliers
The focus of negotiations
will be on getting a lower
cost. Based on the
willingness of suppliers,
determine the savings
estimate for each. Keep
expectations reasonable
as driving costs too low
inevitably leads to a
decline in product quality.
Scheduling and Logistics

Set a delivery schedule and

decide on the best logistical
arrangement for your business.
Compare the rates and services
of logistics providers.
Monitoring performance

Strategic sourcing aims for continuous

improvement. Examine your supplier's
performance to identify what you can do
to maintain a flexible and efficient
sourcing process that adapts to a
changing market environment.
Common Methods of Strategic Sourcing

• Capital Expenditures (Capex)

• Request for Proposal For Soliciting Bids
• Request for Information
QUIZ Why is Inventory important?

What are the advantages of

Strategic Sourcing in business?

What is the relevance of knowing

Inventory and Strategic Sourcing in
the field of Hospitality
Management?