MATCHING

SUPPLY WITH
DEMAND
Inventory in Supply Chain Management

Inve ntor y in s upply cha in ma na ge me nt r e fe r s to the s tock of raw ma te r ia ls ,

w or k-in-pr ogr e s s goods , a nd fi nis he d pr oducts tha t a compa ny holds a t va r ious
s ta ge s w ithin its s upply cha in

Inve ntor y s e r ve s a s a buff e r be tw e e n diff e r e nt s ta ge s of the s upply cha in,

e ns ur ing tha t the r e is a n a de qua te s upply of pr oducts to f ulfi ll cus tome r or de r s ,
ha ndle une xpe cte d fl uctua tions in de ma nd, a nd a ccommoda te le a d time s for
pr oduction a nd de live r y

Inve ntor y, a s de fi ne d by the Ins titute of Logis tics a nd Tra ns por t, r e fe r s to the
goods a nd ma te r ia ls tha t a n or ga niz a tion pos s e s s e s for the pur pos e of s a le or
inte r na l us e
Reasons for Maintaining Inventory

Mitiga ting s upplie r unce r ta inty: Inve ntor y s e r ve s a s a s a fe ty ne t a ga ins t

pote ntia l s upplie r f a ilur e s or unfor e s e e n e ve nts like s tr ike s , tra ns por ta tion
dis r uptions , na tura l dis a s te r s , cr op f a ilur e s , or ge opolitica l confl icts

Ma na ging le a d time unce r ta intie s : Whe n s upplie r r e ple nis hme nt a nd le a d time s
a r e unce r ta in, ma inta ining s a fe ty s tock s be come s ne ce s s a r y to e ns ur e
s a tis f a ctor y cus tome r s e r vice le ve ls

C a te r ing to une xpe cte d de ma nds a nd cus tomiz a tion: Inve ntor y a llow s
or ga niz a tions to me e t une xpe cte d s ur ge s in de ma nd or f ulfi ll cus tomize d
pr oduct r e que s ts , s uch a s thos e e ncounte r e d in a gile pr oduction e nvir onme nts
Reasons for Maintaining Inventory

Smoothing s e a s ona l or cyclica l de ma nd: By holding inve ntor y, compa nie s ca n

be tte r ma na ge fl uctua tions in de ma nd due to s e a s ona l pa tte r ns or e conomic
cycle s

E xploiting pr ice a nd qua ntity dis counts : Ta king a dva nta ge of bulk pur cha s e s or
lots la r ge r tha n imme dia te cons umption ne e ds e na ble s or ga niz a tions to s e cur e
cos t s avings a nd dis counts off e r e d by s upplie r s

H e dging a ga ins t a nticipa te d s hor ta ge s a nd pr ice incr e a s e s : Inve ntor y ca n a ct a s

a he dge a ga ins t a nticipa te d s ca r city or pr ice hike s , pa r ticula r ly dur ing pe r iods
of high infl a tion or w he n s pe cula tion is pa r t of the or ga niz a tion' s s tra te gy
Reasons for Maintaining Inventory

Ensuring rapid replenishment of frequently demanded items:

Constantly required items like maintenance supplies and offi ce
stationer y can be readily available through inventory, enabling
prompt replenishment and uninterrupted operations
Types of Inventory
Raw Materials: Raw materials are the
basic components that are used in
the production process
Maintenance, Repair, and
Operations : MRO inventory includes
items required to support the
production process and maintain the
operational efficiency of a company
Work-in-Progress : Work-in-progress
inventory consists of products that
are currently in the production
process but are not yet completed
Cycle Stock: Cycle stock refers to
inventory that fluctuates in response
to regular demand patterns
Finished Goods: Finished goods
inventory comprises the final
products that are ready for sale and
delivery to customers
Safety Stock: Safety stock is
inventory held as a buffer to protect
against unexpected fluctuations in
demand or supply chain disruptions
Types of Inventory

Seasonal Inventory: Anticipation Pipeline Inventory: Consignment Obsolete Inventory:

Seasonal inventory Inventory: Pipeline inventory Inventory: Obsolete inventory
is specific to Anticipation refers to goods that Consignment consists of items
industries or inventory is held in are in transit or inventory is stock that are no longer
products with anticipation of moving through the that is placed at a saleable or usable
distinct seasonal known events or supply chain customer's location due to changes in
demand patterns circumstances that but still owned by product design,
may disrupt the the supplier or technological
supply chain manufacturer until advancements, or
it is sold or used shifts in customer
preferences
TYPES OF INVENTORY
Deadstock: Deadstock refers to items that were once in demand but are now obsolete or discontinued
Scope of inventory management

Inventory Planning: This involves determining the optimal levels of inventory required to meet
customer demand while minimizing holding costs and stockouts

I n v e n t o r y O p t i m i z a t i o n : I n v e n t o r y o p t i m i z a t i o n f o c u s e s o n fi n d i n g t h e r i g h t b a l a n c e b e t w e e n i n v e n t o r y
investment and service levels

I n v e n t o r y F o r e c a s t i n g : A c c u r a t e d e m a n d f o r e c a s t i n g i s c r u c i a l f o r e ff e c t i v e i n v e n t o r y m a n a g e m e n t

O r d e r M a n a g e m e n t : M a n a g i n g c u s t o m e r o r d e r s a n d o r d e r f u l fi l l m e n t p r o c e s s e s i s a n i n t e g r a l p a r t o f
inventory management

Inventory Control: Inventory control focuses on maintaining accurate inventory records, tracking stock
movements, and conducting periodic physical inventory counts to ensure data integrity
Scope of inventory management

Re p l e n i s h m e n t M a n a g e m e n t : Re p l e n i s h m e n t m a n a g e m e n t i n vo l ve s m a n a g i n g t h e
p r o c u r e m e n t a n d r e p l e n i s h m e n t o f i n ve n t o r y

I n ve n t o r y C l a s s i fi c a t i o n : C l a s s i f y i n g i n ve n to r y b a s e d o n i t s c h a ra c t e r i s t i c s , va l u e ,
a n d d e m a n d p a t t e r n s h e l p s i n p r i o r i t i z i n g m a n a g e m e n t e ff o r t s

I n ve n t o r y C o s t i n g : I n ve n t o r y c o s t i n g e n t a i l s d e t e r m i n i n g t h e va l u e o f i n ve n t o r y a n d
a s s i g n i n g c o s t s t o i n ve n t o r y i t e m s a c c u ra t e l y

I n ve n t o r y Pe r fo r m a n c e M e a s u r e m e n t : M e a s u r i n g a n d a n a l y z i n g i n ve n t o r y
p e r fo r m a n c e h e l p s e va l u a t e t h e e ff e c t i ve n e s s o f i n ve n t o r y m a n a g e m e n t s t ra t e g i e s

Te c h n o l o g y a n d Sy s t e m s : U t i l i z i n g t e c h n o l o g y a n d i n ve n t o r y m a n a g e m e n t s y s t e m s
p l a y s a s i g n i fi c a n t r o l e i n i n ve n t o r y m a n a g e m e n t
Objectives of Inventory management

E n s u r e A d e q u a t e S t o c k L e ve l s : T h e p r i m a r y o b j e c t i ve o f i n ve n t o r y m a n a g e m e n t i s t o
m a i n t a i n s u ffi c i e n t i n ve n t o r y l e ve l s t o m e e t c u s t o m e r d e m a n d p r o m p t l y

M i n i m i z e H o l d i n g C o s t s : I n ve n t o r y i n c u r s va r i o u s c o s t s , i n c l u d i n g s t o ra g e , h a n d l i n g ,
i n s u ra n c e , a n d o b s o l e s c e n c e

O p t i m i z e Wo r k i n g C a p i t a l : I n ve n t o r y t i e s u p a s i g n i fi c a n t p o r t i o n o f a c o m p a n y ' s
working capital

M i n i m i z e S to c ko u t s a n d B a c ko r d e r s : I n ve n t o r y m a n a g e m e n t s e e k s t o m i n i m i z e
s to c ko u t s , w h e r e p r o d u c t s a r e u n a va i l a b l e w h e n c u s t o m e r s d e m a n d t h e m

I m p r ove S u p p l y C h a i n E ffi c i e n c y : E ffi c i e n t i n ve n t o r y m a n a g e m e n t c o n t r i b u t e s t o

s m o o t h e r s u p p l y c h a i n o p e ra t i o n s
Objectives of Inventory management

E n h a n c e Fo r e c a s t A c c u ra c y : I n ve n t o r y m a n a g e m e n t o b j e c t i ve s i n c l u d e i m p r o v i n g
fo r e c a s t a c c u ra c y t o m i n i m i z e fo r e c a s t e r r o r s a n d u n c e r t a i n t i e s

M i t i g a te R i s k : I n ve n t o r y m a n a g e m e n t a i m s t o m i t i g a t e r i s k s a s s o c i a t e d w i t h s u p p l y
c h a i n d i s r u p t i o n s , s u c h a s s u p p l i e r f a i l u r e s , n a t u ra l d i s a s t e r s , o r u n fo r e s e e n e ve n t s

O p t i m i z e P r o d u c t i o n a n d P r o c u r e m e n t P r o c e s s e s : E ffi c i e n t i n ve n t o r y m a n a g e m e n t
facilitates the optimization of production and procurement processes

S u p p o r t C o s t- E ff e c t i ve P r o m o t i o n s a n d S p e c i a l O ff e r s : E ff e c t i ve i n ve n t o r y
m a n a g e m e n t e n a b l e s c o m p a n i e s t o p l a n a n d e xe c u t e p r o m o t i o n s , d i s c o u n t s , o r
s p e c i a l o ff e r s e ffi c i e n t l y
Objectives of Inventory management

Improve Overall Business Per formance: Ultimately, the objective of

inventor y management is to contribute to the overall business
per formance of an organization
Tools of Inventory management

ABC Analysis: ABC analysis is a technique used to classify inventory

items based on their value and impor tance

H e l p s p r i o r i t i z e i n v e n t o r y m a n a g e m e n t e ff o r t s b y f o c u s i n g o n h i g h - v a l u e
items

Enables better allocation of resources and attention to critical inventory

F a c i l i t a t e s e ffi c i e n t i n v e n t o r y c o n t r o l a n d d e m a n d f o r e c a s t i n g

Requires accurate and up-to-date data on item values and usage

May overlook certain factors, such as demand volatility or lead time, which
c a n a ff e c t i n v e n t o r y m a n a g e m e n t d e c i s i o n s

Can be time-consuming to analyze and maintain, especially for

organizations with a large number of items
Tools of Inventory management

RFID : RFID is a te c hn ology t ha t us e s ra dio waves to a utoma tic a lly ide ntify a nd
t ra c k inve ntor y ite ms

P rovi des rea l - ti me vi s i bi l i ty a nd tra c ki ng of i nventor y, i mprovi ng i nventor y a cc urac y

Ena bl es f a s ter a nd more effi c i ent i nventor y c ounti ng and reconc i l i ati on

Reduc es ma nua l eff or t a nd huma n errors a s s oc i a ted wi th tradi ti onal barcode s c anni ng

Requi res upf ront i nves tment i n RF ID i nf ra s truc ture and ta gs

May f a c e l i mi ta ti ons i n rea di ng a c c ura c y a nd range, es pec i al l y i n cer ta i n envi ronments

Integra ti on w i th ex i s ti ng i nventor y ma na g ement s ys tems a nd proces s es c an be c ompl ex

Tools of Inventory management

B a r c o d i n g : B a r c o d i n g i nvo l ve s a s s i g n i n g u n i q u e b a r c o d e s t o i nve n t o r y i t e m s a n d
s c a n n i n g t h e m u s i n g b a r c o d e s c a n n e r s o r m o b i l e d e v i c e s t o t ra c k a n d m a n a g e i nve n t o r y

C o s t- e ff e c t i v e a n d w i d e l y a d o p t e d t e c h n o l o g y f o r i nv e n t o r y t ra c k i n g

I mp r o v e s i nv e n t o r y a c c u ra c y a n d r e d u c e s m a n u a l d a t a e n t r y e r r o r s

E n h a n c e s e ffi c i e n c y i n i nv e n t o r y c o u n t i n g , p i c k i n g , a n d r e c e i v i n g p r o c e s s e s

Re q u i r e s p r o p e r b a r c o d e l a b e l i n g a n d s c a n n i n g e q u i p me n t f o r e ff e c t i v e i m p l e m e n t a t i o n

L i m i t e d t o l i n e - o f- s i g h t s c a n n i n g , w h i c h c a n b e t i m e - c o n s u m i n g f o r b u l k y o r h a r d - t o - r e a c h
i t e ms

B a r c o d e l a b e l s m ay g e t d a m a g e d o r b e c o m e u n r e a d a b l e , i m p a c t i n g i nv e n t o r y v i s i b i l i t y
Tools of Inventory management

Inve ntor y Ma na ge me nt Sof twa r e : Inve ntor y ma na ge me nt s of twa r e pr ovide s

tools a nd f unctiona litie s to s tr e a mline a nd a utoma te inve ntor y-r e la te d pr oce s s e s

C entra l i zes i nventor y d a ta a nd ena b l es r ea l -ti m e v i si b i l i ty a cr oss m ul ti pl e l oca ti o ns

Autom a tes i nventor y-r el a ted ta sk s, r ed uci ng m a nua l eff or t a nd i m p r ov i ng a ccura cy

Pr ov i d es a na l y ti ca l ca pa b i l i ti es a nd r ep or ti ng to sup p or t d a ta - dr i ven d eci si o n- m a k i ng

Req ui r es i ni ti a l setup a nd custom i za ti o n to a l i g n wi th sp eci fi c b usi ness needs

C a n b e co stl y, esp eci a l l y fo r sm a l l busi nesses or o r g a ni za ti ons wi th l i m i ted b ud g ets

M ay r eq ui r e tra i ni ng f or user s to m a xi m i ze the b enefi ts a nd uti l i za ti on o f the sof twa r e

The economics of inventory

Holding Costs: Holding costs are the expenses incurred by a business for storing and maintaining
inventory

Ordering Costs: Ordering costs are the expenses associated with placing and receiving orders for
inventory

S t o c k o u t C o s t s : S t o c k o u t c o s t s o c c u r w h e n i n v e n t o r y l e v e l s a r e i n s u ffi c i e n t t o m e e t c u s t o m e r d e m a n d

Economies of Scale: Inventory management considers the economies of scale associated with
purchasing larger quantities of inventory

Carrying Costs: Carrying costs represent the expenses incurred to store, protect, and manage inventory

Cost of Capital: The cost of capital is the opportunity cost associated with tying up capital in inventory
The economics of inventory

Lead Time Costs: Lead time costs refer to the expenses and risks
associated with the time it takes for inventory to be replenished
Inventory Performance Measures

I n ve n t o r y Tu r n ove r : I n ve n t o r y t u r n ove r i s a ra t i o t h a t i n d i c a t e s h o w m a n y t i m e s
i n ve n to r y i s s o l d a n d r e p l a c e d w i t h i n a s p e c i fi c p e r i o d

D a y s o f I n ve n t o r y o n H a n d : D OI m e a s u r e s t h e a ve ra g e n u m b e r o f d a y s i t t a ke s fo r
i n ve n to r y to b e s o l d a n d r e p l a c e d

G r o s s M a r g i n Re t u r n o n I n ve n t o r y I n ve s t m e n t : G M R OI a s s e s s e s t h e p r o fi t a b i l i t y o f
i n ve n to r y b y c o m p a r i n g t h e g r o s s m a r g i n g e n e ra t e d w i t h t h e i n ve s t m e n t i n i n ve n t o r y

F i l l R a te : F i l l ra t e m e a s u r e s t h e p e r c e n t a g e o f c u s t o m e r d e m a n d t h a t i s m e t d i r e c t l y
f r o m a va i l a b l e i n ve n t o r y w i t h o u t b a c ko r d e r s o r s t o c ko u t s

S t o c ko u t R a t e : S t o c ko u t ra t e m e a s u r e s t h e p e r c e n t a g e o f c u s t o m e r d e m a n d t h a t
c a n n o t b e f u l fi l l e d d u e t o i n s u ffi c i e n t i n ve n t o r y
Inventory Performance Measures

C a r r ying C os t of Inve ntor y: C a r r ying cos t of inve ntor y qua ntifi e s the e xpe ns e s
a s s ocia te d w ith s tor ing a nd ma inta ining inve ntor y ove r a s pe cifi c pe r iod

Ba ckor de r Ra te : Ba ckor de r ra te me a s ur e s the pe r ce nta ge of cus tome r or de r s

tha t ca nnot be f ulfi lle d imme dia te ly a nd a r e pla ce d on ba ckor de r

Inve ntor y Accura cy: Inve ntor y a ccura cy me a s ur e s the cons is te ncy be tw e e n
r e cor de d inve ntor y le ve ls a nd the a ctua l phys ica l inve ntor y

Le a d T ime Va r ia bility: Le a d time va r ia bility a s s e s s e s the cons is te ncy of the time

it ta ke s to r e ce ive inve ntor y f r om s upplie r s
Safety Stock and
Service level

Safety Stock: Safety stock is an

a d d i t i o n a l i n v e n t o r y b u ff e r h e l d
beyond the average expected
demand to account for uncertainties
in demand and supply

Service Level: Service level is a

measure of the desired level of
customer satisfaction or the ability
to meet customer demand
Safety Stock and Service level

D e m a n d fo r t h e F i n a l P r o d u c t : T h e q u a n t i t y o f m a t e r i a l s a n d c o m p o n e n t s n e e d e d i s
i n fl u e n c e d b y t h e d e m a n d fo r t h e fi n a l p r o d u c t t h e y w i l l b e i n c o r p o ra t e d i n t o

I n ve n t o r y Po l i c y : T h e o r g a n i z a t i o n ' s i n ve n t o r y p o l i c y p l a y s a c r u c i a l r o l e i n
determining the quantity of materials and components to be purchased

P r o d u c t i o n M e t h o d s : T h e p r o d u c t i o n m e t h o d s e m p l oye d , s u c h a s j o b, b a t c h ,
a s s e m b l y, o r p r o c e s s p r o d u c t i o n , a ff e c t t h e q u a n t i t y o f m a t e r i a l s a n d c o m p o n e n t s
required

D e m a n d Ty p e : T h e d e m a n d fo r t h e i t e m c a n b e i n d e p e n d e n t o r d e p e n d e n t

S e r v i c e L e ve l : T h e d e s i r e d s e r v i c e l e ve l d e t e r m i n e s t h e i n c i d e n c e o f a va i l a b i l i t y
r e q u i r e d fo r t h e m a t e r i a l s a n d c o m p o n e n t s
Safety Stock and Service level

Market Conditions: Market conditions, including fi nancial, political,

and other factors, infl uence the decision to purchase requirements
on a "hand-to-mouth" or "forward" basis

Economic Order Quantities: Determining the economic order

quantities is impor tant
DEMAND AND
INVENTORY
MANAGEMENT
Push and pull inventory systems

Push Inventory System: In a push inventory system, inventory

decisions are based on forecasts and production plans

Forecast-driven: Inventor y levels are determined by demand

forecasts or sales projections

C e n t r a l i z e d d e c i s i o n - m a k i n g : I n v e n t o r y d e c i s i o n s a r e m a d e c e n t r a l l y,
often by a planning or forecasting team

Long lead times: Production and procurement lead times are typically
l o n g e r t o a c c o u n t f o r t h e t i m e r e q u i r e d t o f u l fi l l t h e a n t i c i p a t e d
demand

Risk of overstocking: Since inventory levels are based on forecasts,

there is a risk of overstocking if demand does not match expectations
Push and pull inventory systems

P u l l I n ve n t o r y Sy s t e m : I n a p u l l i n ve n t o r y s y s t e m , i n ve n t o r y d e c i s i o n s a r e b a s e d o n
a c t u a l c u s to m e r d e m a n d

D e m a n d - d r i ve n : I nve n t o r y l e ve l s a r e d e t e r m i n e d b y a c t u a l c u s t o m e r o r d e r s o r c o n s u m p t i o n
signals

D e c e n t ra l i z e d d e c i s i o n - m a k i n g : I nve n t o r y d e c i s i o n s a r e m a d e a t e a c h l e ve l o f t h e s u p p l y
chain based on customer demand signals

Short lead times: Production and procurement lead times are typically shorter to respond
quickly to customer orders

Re d u c e d r i s k o f o ve r s t o c k i n g : I nv e n t o r y i s r e p l e n i s h e d b a s e d o n a c t u a l d e m a n d , r e d u c i n g
t h e r i s k o f o ve r s t o c k i n g
Independent Demand

F i x e d O r d e r Q u a n t i t i e s : F i x e d o r d e r q u a n t i t i e s , a l s o k n o w n a s fi x e d l o t s i z e s , i n v o l v e
ordering a predetermined quantity of items whenever inventory reaches a certain
reorder point

Easy to implement and understand

H e l p s i n r e d u c i n g o r d e r p r o c e s s i n g c o s t s , a s o r d e r s a r e p l a c e d i n fi x e d q u a n t i t i e s a t r e g u l a r
i n t e r va l s

C a n b e n e fi t f r o m v o l u m e d i s c o u n t s a n d e c o n o m i e s o f s c a l e w h e n o r d e r i n g i n l a r g e r q u a n t i t i e s

May result in either excess inventory or stockouts if the order quantity is not properly
determined

D o e s n o t a d a p t w e l l t o d e m a n d va r i a b i l i t y, w h i c h c a n l e a d t o i n e ffi c i e n t i n v e n t o r y l e v e l s
Independent Demand
Economic Order Quantity : EOQ is a mathematical formula that
calculates the optimal order quantity to minimize the total costs
associated with inventory management

E n a b l e s e ffi c i e n t i n v e n t o r y m a n a g e m e n t b y m i n i m i z i n g t o t a l i n v e n t o r y
costs

Provides a clear guideline for determining the optimal order quantity

b a s e d o n s p e c i fi c c o s t f a c t o r s

Wo r k s w e l l f o r i t e m s w i t h s t a b l e d e m a n d p a t t e r n s a n d k n o w n c o s t s

Assumes constant demand, which may not hold true for items with
fl u c t u a t i n g d e m a n d p a t t e r n s

Ignores factors such as lead time variability and stockout costs

Requires accurate data and assumptions to yield reliable results

Independent Demand
Pe r i o d i c R e v i e w S y s t e m : I n a p e r i o d i c r e v i e w s y s t e m , i n v e n t o r y
l e v e l s a r e r e v i e w e d a n d r e p l e n i s h e d a t fi x e d i n t e r v a l s

P r o v i d e s fl e x i b i l i t y i n o r d e r i n g b y c o n s i d e r i n g d e m a n d p a t t e r n s o v e r
a s p e c i fi c t i m e i n t e r v a l

Allows for consolidation of orders, reducing order and

transportation costs

Can accommodate items with variable demand patterns

M a y r e s u l t i n i n v e n t o r y i m b a l a n c e s i f d e m a n d v a r i e s s i g n i fi c a n t l y
within the review period

Requires accurate demand forecasting to ensure proper

replenishment
Dependent Demand

J u s t - i n -T i m e : J u s t - i n -T i m e i s a n i n v e n t o r y m a n a g e m e n t a p p r o a c h t h a t f o c u s e s o n m i n i m i z i n g i n v e n t o r y l e v e l s b y
receiving and producing goods or materials just in time for their use in the production process

R e d u c e d i n v e n t o r y h o l d i n g c o s t s a n d i m p r o v e d c a s h fl o w

Lower storage and warehousing requirements

Minimized risk of obsolete or outdated inventory

E n h a n c e d p r o d u c t i o n fl e x i b i l i t y a n d r e s p o n s i v e n e s s t o d e m a n d c h a n g e s

Improved quality control through a focus on process optimization

H i g h d e p e n d e n c e o n r e l i a b l e a n d e ffi c i e n t s u p p l y c h a i n p a r t n e r s

Vulne rability to supply chain disruptions or delays

L i m i t e d b u ff e r s t o c k f o r u n f o r e s e e n d e m a n d fl u c t u a t i o n s

Increased risk of stockouts if supply disruptions occur

Dependent Demand

Just-in-Time : Just-in-Time is an inventory management approach

that focuses on minimizing inventory levels by receiving and
producing goods or materials just in time for their use in the
production process

Requires a high level of coordination and synchronization across the supply chain
Dependent Demand

M a t e r i a l s a n d Re q u i r e m e n t s P l a n n i n g : M a t e r i a l s a n d Re q u i r e m e n t s P l a n n i n g i s a s y s t e m t h a t
uses computerized algorithms and sof tware to manage and plan the materials needed for
production based on the master production schedule

I m p r o v e d a c c u r a c y i n i n v e n t o r y p l a n n i n g a n d o r d e r g e n e ra t i o n

Enhanced visibility into material requirements and lead times

E ffi c i e n t p r o d u c t i o n s c h e d u l i n g a n d c a p a c i t y u t i l i z a t i o n

E n a b l e s b e t t e r c o o r d i n a t i o n b e t w e e n d i ff e r e n t d e p a r t m e n t s a n d f u n c t i o n s

S u p p o r t s e ff e c t i v e m a n a g e m e n t o f c o m p l e x a n d m u l t i l e v e l b i l l s o f m a t e r i a l s

Re l i a n c e o n a c c u r a t e d a t a , i n c l u d i n g b i l l o f m a t e r i a l s a n d d e m a n d f o r e c a s t s

High implementation and maintenance costs for MRP systems

Dependent Demand

Materials and Requirements Planning : Materials and Requirements

Planning is a system that uses computerized algorithms and
software to manage and plan the materials needed for production
based on the master production schedule

Limited fl exibility in accommodating unexpected changes in demand or supply

Requires skilled personnel to operate and maintain the MRP system

Can be complex and time-consuming to set up initially

Dependent Demand

D i s t r i b u t i o n Re q u i r e m e n t s P l a n n i n g : D i s t r i b u t i o n Re q u i r e m e n t s P l a n n i n g i s a n i n v e n t o r y
m a n a g e m e n t s y s t e m t h a t f o c u s e s o n r e p l e n i s h i n g d i s t r i b u t i o n c e n t e r o r w a r e h o u s e i nv e n t o r y
to meet customer demand

E ffi c i e n t m a n a g e m e n t o f i n v e n t o r y a t d i s t r i b u t i o n c e n t e r s o r w a r e h o u s e s

Minimized stockouts and improved customer service levels

Enhanced visibility into inventory requirements across the distribution network

Streamlined coordination between suppliers, manufacturers, and distributors

Optimal allocation of inventory based on demand patterns and lead times

Complex implementation and maintenance due to multiple inventory locations

Re q u i r e s a c c u r a t e d e m a n d f o r e c a s t s a n d r e a l - t i m e d a t a f r o m va r i o u s l o c a t i o n s
Dependent Demand

Distribution Requirements Planning : Distribution Requirements

Planning is an inventor y management system that focuses on
replenishing distribution center or warehouse inventory to meet
customer demand

Dependence on eff ective communication and information sharing between

par tners

Potential for overstocking if demand forecasts are inaccurate

May involve high transpor tation costs for frequent replenishment

Dependent Demand

Enterprise Resource Planning : Enterprise Resource Planning is a comprehensive business management

sof tware system that integrates various functions and processes across an organization

Centralized and real-time visibility into inventory levels, demand, and supply chain processes

I m p r o v e d c o o r d i n a t i o n a n d i n f o r m a t i o n s h a r i n g a c r o s s d i ff e r e n t d e p a r t m e n t s a n d f u n c t i o n s

E n h a n c e d e ffi c i e n c y i n i n v e n t o r y p l a n n i n g , p r o c u r e m e n t , a n d p r o d u c t i o n s c h e d u l i n g

S t r e a m l i n e d o r d e r m a n a g e m e n t a n d f u l fi l l m e n t p r o c e s s e s

Enables data-driven decision-making and performance monitoring

High upfront costs for implementation, customization, and training

Complex integration and data migration processes

R e q u i r e s s i g n i fi c a n t t i m e a n d r e s o u r c e s f o r s u c c e s s f u l i m p l e m e n t a t i o n
Dependent Demand

Enterprise Resource Planning : Enterprise Resource Planning is a

comprehensive business management software system that
integrates various functions and processes across an organization

May lead to resistance and disruption during organizational change

Continuous maintenance and updates are necessar y to keep the system optimized
Dependent Demand

Ve n d o r - M a n a g e d I n v e n t o r y : Ve n d o r - M a n a g e d I n v e n t o r y i s a c o l l a b o r a t i v e i n v e n t o r y m a n a g e m e n t
approach where the supplier is responsible for monitoring and replenishing the inventory at the
customer's location

Reduced inventory carrying costs for the customer

Enhanced visibility and control for the supplier

I m p r o v e d o r d e r f u l fi l l m e n t a n d r e d u c e d s t o c k o u t s

Minimized administrative tasks for the customer

Closer collaboration and information sharing between the customer and supplier

Requires a high level of trust and collaboration between the customer and supplier

Potential loss of control over inventory management for the customer

Dependency on accurate and timely data sharing between the parties

Dependent Demand

Vendor-Managed Inventor y : Vendor-Managed Inventory is a

collaborative inventor y management approach where the supplier is
responsible for monitoring and replenishing the inventory at the
customer's location

Can be challenging to implement across multiple suppliers or locations

May require adjustments to existing contracts and agreements

Dependent Demand

Comparison: These inventor y management approaches diff er in their

focus, scope, and level of integration within the supply chain

JIT and VMI share a focus on reducing inventor y levels and improving effi ciency
but diff er in terms of control and responsibility

MRP and DRP focus on planning and replenishment within specifi c stages of the
supply chain

ERP provides a broader scope of functionality, integrating various aspects of the

organization
Demand Forecasting Techniques

Forecasting techniques can be broadly classifi ed into two categories:

qualitative and quantitative

Here are some commonly used techniques within each category

Qualitative Forecasting Techniques

Exper t Opinion: Exper t opinions and judgments are collected from

individuals with relevant knowledge and expertise in the industry

Market Sur veys: Sur veys are conducted to gather data from
customers, potential customers, or other relevant stakeholders

Delphi Method: The Delphi method involves collecting and

aggregating anonymous opinions from a panel of exper ts
Quantitative Forecasting Techniques

T i m e S e r i e s A n a l y s i s : T i m e s e r i e s fo r e c a s t i n g u s e s h i s t o r i c a l d a t a t o i d e n t i f y
patterns, trends, and seasonality in the data

Re g r e s s i o n A n a l y s i s : Re g r e s s i o n a n a l y s i s i n vo l ve s i d e n t i f y i n g t h e r e l a t i o n s h i p
b e t w e e n t h e fo r e c a s t e d va r i a b l e a n d o n e o r m o r e i n d e p e n d e n t va r i a b l e s

Econometric Models: Econometric models are used when economic factors, such as
G D P, i n fl a t i o n , i n t e r e s t ra t e s , o r i n d u s t r y- s p e c i fi c i n d i c a t o r s , i m p a c t t h e d e m a n d fo r
a product or service

A r t i fi c i a l I n t e l l i g e n c e a n d M a c h i n e L e a r n i n g : A I a n d M L t e c h n i q u e s , s u c h a s n e u ra l
n e t w o r k s , s u p p o r t ve c t o r m a c h i n e s , a n d ra n d o m fo r e s t s , c a n b e a p p l i e d t o fo r e c a s t
based on large and complex datasets
The bullwhip effect

D e m a n d I n f o r m a t i o n S h a r i n g : E ff e c t i v e p r o c u r e m e n t i n v o l v e s s h a r i n g
accurate and timely demand information with suppliers

Supplier Collaboration: Establishing collaborative relationships with

s u p p l i e r s i s e s s e n t i a l f o r a d d r e s s i n g t h e b u l l w h i p e ff e c t

Order Smoothing: Procurement can implement strategies to smooth

o u t o r d e r fl u c t u a t i o n s a n d m i n i m i z e d e m a n d v o l a t i l i t y

Inventory Optimization: Procurement can implement inventory

optimization techniques to strike a balance between demand
variability and inventory holding costs

Supply Chain Visibility and Coordination: Procurement plays a crucial

role in fostering supply chain visibility and coordination
Procurement and inventory

S i g n i fi c a n c e o f I n ve n t o r y a s a n A s s e t : I n m a n y o r g a n i z a t i o n s , i n c l u d i n g i n d u s t r i e s
l i ke c o n s t r u c t i o n , i n ve n t o r y r e p r e s e n t s a va l u a b l e a s s e t

I m p a c t o n C o s t a n d P r o fi t a b i l i t y : I n e ffi c i e n t i n ve n t o r y m a n a g e m e n t c a n i n c r e a s e
c o s t s a n d r e d u c e p r o fi t a b i l i t y

F l e x i b i l i ty a n d C o m p e t i t i ve A d va n t a g e : I n ve n t o r y m a n a g e m e n t c a n e n h a n c e
fl e x i b i l i ty a n d p r o v i d e a c o m p e t i t i ve a d va n t a g e b y e n a b l i n g o r g a n i z a t i o n s t o r e s p o n d
s w i f t l y to c u s t o m e r r e q u i r e m e n t s , p a r t i c u l a r l y i n a g i l e p r o d u c t i o n e n v i r o n m e n t s

S u p p l i e r C o o p e ra t i o n a n d C o n t ra c t N e g o t i a t i o n : E ffi c i e n t a n d e ff e c t i ve i n ve n t o r y
m a n a g e m e n t r e l i e s o n t h e c o l l a b o ra t i o n o f r e l i a b l e s u p p l i e r s
Video links

https://www.youtube.com /watch?v=MlSJ-ZErq0c

https://www.youtube.com /watch?v=x1Uv01hr_Zg

https://www.youtube.com /watch?v=9_dqevGgG -o

https://www.youtube.com /watch?v=jOGU-kuB27g

https://www.youtube.com /watch?v=iALiS4FBB6E

https://www.youtube.com /watch?v=zCTmN17ZDek