Safety Stock - The Fresh Connection
Inventory Management Definition of inventory control Inventory control is the activity and methods of keeping the right level of inventory . Three questions: – – – What should I keep on stock? How much to order? When to order? Order Quantity Reorder Point Safety Stock Time 2 What is the right level? Inventory finished products and its traditional conflicts VP Supply Chain Components • High inventory turns • Maximum flexibility Finished product Supply Production Distribution VP Purchasing VP Operations VP Sales • Long runs – minimize changeovers • High service level • Safety stocks Intermezzo: How much inventory do you need? 4 days leadtime ? supplier You Wants a delivery in 1 week customer How much inventory do you need ? • □ nothing • □ a little bit • □ enough Reasons for Carrying Inventory The only good reason for carrying inventory beyond current needs is if it costs less to carry it than not. Inventory allows the company to operate with different production rates and batch sizes throughout the supply, production, and distribution system. Inventory decouples . . . Demand Customer demand Finished goods Output of one operation Materials to begin production © 2009 APICS CONFIDENTIAL AND 65 from from from from from Supply Finished goods Component availability Output of prec. operation Suppliers of materials Functions of Inventory • • • • • © 2009 APICS CONFIDENTIAL AND Anticipation inventory Safety stock Lot-size inventory Transportation inventory Hedge inventory 66 CODP is important in designing the planning methods supplier production parts distribution HF FG FG installation CODP1 CODP2 CODP3 CODP4 KCODP5 Make to local stock Make to stock assembly to order production to order purchase to order 1) Customer Order Disconnection Point : how far does a customer order penetrate? 7 customer Inventory in TFC Components pallets Finished product pallets Supply Mixing Bottling Distribution tankyard Explore TFC How much inventory in weeks and value in components and finished products? For what reasons we need inventory in this supply chain? 8 Inventory management Balancing act of • Service level offering to the market • Production reliability – Capacity – Availability of components • Safety stock and production frequencies Inventory carrying Costs Capital Costs Storage Costs Risk Costs Obsolescence Opportunity Cost Space Damage Personnel Pilferage Equipment Insurance Deterioration Cos of inventory versus out of stock Out of stock costs – – – – – – Cost of backorders Expediting costs Cost of complaints Revenue loss Loss of customers Idle time at your customer Inventory costs – Capital – Storage – Risk Explore TFC Estimate the inventory carrying costs for a finished product costs/year The optimum safety stock is the stock where the stock costs and shortages are equal total stock costs costs of shortages optimum safety stock 12 safety stock safety stock The optimum service level is the service level with an optimum safety stock Service level curve optimum safety stock min. costs 100% 98% 96% service level 94% optimum service level 13 92% What is the right servicelevel? In most cases this is a management decision € profit 0 loss loss costs tevenu result optimum servicelevel 14 100% Costs Optimal inventory is the desired service level against minimal costs Target level Optimum 0 100% Target% Service level Costs Excersise Today Target level Optimum 0 100% Target% -How to get this curve lower? Service level Service level Stock finished product Production reliability (Past) shelf life Production interval Service level Finished goods warehouse Number of employees Order deadline Volatility of demand Promotion pressure and horizon Bonus policy How much to order? + minimum + Total costs Ordering costs Inventory costs Order quantity T 18 S Inventory in time Order Quantity Reorder Point Safety Stock Time • What is the influence of the ordersize of finished products? • How to decide on the order size? 1-16 EOQ: Cost & Quantity Relationships 1600 1400 EOQ Cost in Dollars 1200 1000 800 Ordering Costs Carrying Costs 600 Total Cost 400 200 0 0 200 400 600 800 1000 1200 Order Quantity Source: Arnold et al., Introduction to Materials Management, 6th ed. Reprinted by Permission of Pearson Education © 2009 APICS CONFIDENTIAL AND 7 20 Batch sizes Manage Cost Tradeoffs Inventory Carrying Costs Ordering Costs Ordering in small quantities minimizes inventory carrying costs But ordering in small quantities requires more orders and increases order costs Managing tradeoffs by balancing ordering costs and inventory carrying costs % deviation from min cost The sensitivity of EOQ is limited 25% 20% 15% 10% TCQ /TCEOQ 5% 0% -5% -50% -40% -30% -20% -10% 0% EOQ 10% 20% 30% 40% 50% % deviation from EOQ TC = total cost 22 Is this all? • Available production capacity? • Customer value? Ordering cost • Administration – Cost of supplier mgt and selsection – Cost of order preparation – Cost of invoicing and paiment • Physical.: – Cost of receiving and QC – Cost of change over • Other.: – Transportation cost – .. 23 Order quantity O Q Time O Q What is the influence of orderquantity on servicelevel? Wjem to order + Minimuml + Total Cost Cost of out of stock Inventory cost Safetystock T 25 S Exercise: Safety stock • For item X the following applies: – Average consumption – Delivery time – Present stock – Service level-target Question: • When do you order? 26 100 pc/mth 1 month 200 pc 98 % Exercise : Safety stock 600 600 600 500 500 500 400 400 400 300 300 300 200 200 200 100 100 100 0 0 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 8 9 10 11 12 600 600 600 500 500 500 400 400 400 300 300 300 200 200 200 100 100 100 0 0 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 0 1 2 3 4 5 6 7 8 9 10 11 12 27 Exercise: Safety stock • For item X the following applies: – Average consumption – Delivery time – Present stock – Service level-target Question: • When do you order? No idea! 28 100 pc/mth 1 month 200 pc 98 % Order Point System Replenishment Quantity in inventory A A Reorderpoint Demand during lead time (DDLT) B C C B LT Safetystock Time Source: Adapted from CPIM Inventory Management Certification Review Course (APICS 1998). 2 29 © 2010 APICS CONFIDENTIAL AND PROPRIETARY LT How to decide on safety stocks? • Service level • Production order quantity • Demand uncertainty • Supply uncertainty demand In analytically determining the safety stock, the starting point is variation in demand μ time µ = estimated demand 31 frequency Optimal inventory is the desired service level against minimal costs Costs Are you on the curve? How to assess? Today Target level Optimum 0 100% Target% Service level Differentation of servicelevel based on uncertainty and value revenue low high low 99%? 95%? high 95%? 90%? uncertainty Intermezzo: How much inventory do you need? 2 weeks leadtime supplier ? RM Fixed period of 3 weeks ? FP 1 day leadtime customer How much inventory do you need on both points ? • • • nothing a little bit enough Something to think about • Where do you prefer to have the highest service levels? Components Supply Finished product Production • Is 95% component service level ok? • Is 100% component service level ok? Distribution Inventory of components Order Quantity Reorder Point Safety Stock Time What makes inventory management of components different from finished products? • service level and demand • supply • product Something to think about (cont) Component availability Number of components #=2 #=3 #=4 90% 81% 73% 66% 95% 90% 86% 81% 98% 96% 94% 92% Obsolete management Obsoletes Stock Safety stock Customer agreements Production interval Shelf life agreements Shelf life % Agreement vs realisation obsolete Shelflife realisation= 85% 85% Shelf life agreement= 70% Shelflife is 20 weeks Internal shelflife
© Copyright 2024