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    Supply Chain Management: A Holistic View of Inventories

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    ALFARM
    This document discusses supply chain management and inventories from a holistic perspective. It defines supply chains and the four main categories of inventories: raw materials, work-in-process, finished goods, and spare parts. For each inventory category, the document discusses the main reasons for holding inventory and goals for managing inventory levels. It also addresses challenges like the bullwhip effect that can occur in multi-echelon supply chains with different inventory management approaches at each level.

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    Supply Chain Management: A Holistic View of Inventories

    Uploaded by

    ALFARM
    10 views20 pages
    This document discusses supply chain management and inventories from a holistic perspective. It defines supply chains and the four main categories of inventories: raw materials, work-in-process, finished goods, and spare parts. For each inventory category, the document discusses the main reasons for holding inventory and goals for managing inventory levels. It also addresses challenges like the bullwhip effect that can occur in multi-echelon supply chains with different inventory management approaches at each level.

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    03SCM

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    This document discusses supply chain management and inventories from a holistic perspective. It defines supply chains and the four main categories of inventories: raw materials, work-in-process, finished goods, and spare parts. For each inventory category, the document discusses the main reasons for holding inventory and goals for managing inventory levels. It also addresses challenges like the bullwhip effect that can occur in multi-echelon supply chains with different inventory management approaches at each level.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    10 views20 pages

    Supply Chain Management: A Holistic View of Inventories

    Uploaded by

    ALFARM
    This document discusses supply chain management and inventories from a holistic perspective. It defines supply chains and the four main categories of inventories: raw materials, work-in-process, finished goods, and spare parts. For each inventory category, the document discusses the main reasons for holding inventory and goals for managing inventory levels. It also addresses challenges like the bullwhip effect that can occur in multi-echelon supply chains with different inventory management approaches at each level.

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    Supply Chain Management

    A Holistic View of Inventories

    Supply Chain
    Definition: Set of interconnected nodes integrating inventory flows and stocks from raw materials to finished goods provided to final customers Goal: Overall, system-wide coordination of inventory stock and flows to improve inventory efficiency throughout the system Supply chain management (SCM)
    2

    Inventories
    Four categories:
    Raw materials (components, subassemblies, or materials purchased from suppliers RM) Work-in-process (unfinished parts or products released in a production system WIP) Finished goods inventory (finished products not yet sold to customers FGI) Spare parts (components used to repair or maintain equipment SP)
    3

    Inventories
    Reasons for holding inventories vary according the type of inventory Raw materials:
    Batching (cycle stock) Variability (safety stock / planned-safety lead time) Obsolescence Reasons are interrelated
    4

    Inventories
    WIP inventory:

    Wait to Match

    Processing Moving

    Wait for Batch Queuing

    Queuing (cause: high utilization flow/process variability) Processing Waiting for batch (cause: large batch size and no lot splitting) Moving Waiting to match (cause: variability / no synch)
    5

    Inventories
    FGI:
    Customer responsiveness (make-to-stock) Batch production Forecast errors Production variability (compensate yield loss) Seasonality (built-ahead inventory) Factors are interrelated (seasonality-forecast)
    6

    Inventories
    FGI (continued):
    View FGI holistically and use alternative production techniques (make/assemble-toorder, excess capacity, seasonal labour)

    Spare parts inventory


    Service (parts available for repairs) Purchasing / production lead times Batch replenishment Similarities/differences with FGI (service level)
    7

    Managing Inventory (RM)


    Goal: Have RM available when needed by the production process without carrying any more inventory than necessary
    Visibility improvement (forecast-cycle timeschedule) ABC classification (sophisticated mgt for A) Just-in-time (frequent deliveries) Appropriately setting safety stocks and safety lead times for purchased components
    8

    Managing Inventory (WIP)


    Goal: Minimize cycle time, which is equivalent to minimize WIP, according to Little s law (CT=WIP/TH)
    Reduce queuing (increase capacity, FCS, setups, quality, reliability/maintainability) Reduce wait for batch (lot splitting, layout) Reduce wait to match (common work backlog, balanced batching)
    9

    Managing Inventory (FGI)


    Goal: Buffer between production and demand to insulate customers from cycle time, absorb variability and level-out capacity
    Improve forecasting Dynamic lead-time quoting Cycle time (and variability) reduction Late customization-postponement Balancing labor, capacity and inventory
    10

    Managing Inventory (SP)


    Goal: To keep production process uninterrupted
    Stratifying demand
    Preventive maintenance related parts handled using standard MRP logic, i.e., backwards planning with actual lead times Emergency repairs related parts handled using some safety stock, especially for critical components (army-navy example)
    11

    Multi-echelon Supply Chains


    Basic challenge: Balance the efficiency of central inventories with the responsiveness of distributed inventories to provide high system performance without excessive tiedup capital to non-value added resources
    Central inventories = variability pooling, thus less safety stock holding Distributed inventory = swifter response to demand due to geographic proximity
    12

    Multi-echelon Supply Chains


    Typical configurations: serial or arborescent Configuration is a decision variable (number or levels, warehouse locations, interconnection policies Logistics)
    Level 1 Level 2 Level 3

    Serial System

    Arborescent System

    13

    Performance Measures
    Fill rates
    Fraction of demand met out of stock

    Backorder level
    Average number of orders waiting to be filled

    Lost sales
    Orders lost due to stock-outs

    Probability of delays
    Likelihood of activity delay due to lack of inventory
    14

    Bullwhip Effect
    Channel alignment or coordination of policies between various supply chain levels
    Information sharing Inventory control Transportation Etc

    Simple approach: Treat each level independently / local optimum policies


    15

    Bullwhip Effect
    Easy to implement and natural for castlebased organizations However, it leads to very poor performance at the overall supply chain
    Inefficiency (inventory held in inefficient quantities and at inefficient locations) Bullwhip effect: amplification of demand fluctuations from the bottom of the supply chain to the top

    16

    Bullwhip Effect
    1600 1400 1200 1000 800 600 400 200 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Time Retail Orders to Distributor Distributor Orders to Manufacturer
    17

    Dem and Quantity

    Bullwhip Effect
    Causes Batching (amplifications in order quantities due to economies of scale) Use of forecasting (independent decisionmakers amplify variability) Remedies Reduce cost of orders, consolidate orders for Full Truck Load (FTL), or use 3PL Share demand data, vendor-managedinventory, lead time reduction
    18

    Bullwhip Effect
    Causes Price discounts or sudden increases Gaming behaviour (exaggerate orders or order from multiple sources - cancel when demand is satisfied) Multi-echelon Remedies Every-day low price, Activity-based costing Allocate inventory according to past sales, reduce lead times, use stringent time fences Eliminate layers
    19

    Conclusions
    Understand why is inventory held Look for structural changes Use empirical evaluation procedures Cycle time reduction is crucial Coordinate levels in multi-echelon SC Coordinate incentive systems & objectives
    20

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