Companies hold inventories for he following reasons 1. Pipeline inventor 2. Seasonal inventory 3. Cycle inventor 4. Decoupling inventory/buffers 5. Safety inventory 6. Speculative inventory 7. Display inventory
Companies hold inventories for the following reasons: 1. Pipeline inventory 2. Seasonal inventory 3. Cycle inventory 4. Decoupling inventory/buffers 5. Safety inventory 6. Speculative inventory 7. Display inventory
Pipeline inventory An item(a flow unit)that has to spend in the process in order to be transformed from input to output Pipeline inventory also refers to as an item in the up-stream supply chain that is designated to coming to you E. g, you order today, then it takes 1 wk for order preparation, then 3 wks shipping =4 wks
Pipeline inventory • An item (a flow unit) that has to spend in the process in order to be transformed from input to output • Pipeline inventory also refers to as an item in the up-stream supply chain that is designated to coming to you E.g., you order today, then it takes 1 wk for order preparation, then 3 wks shipping =4 wks
Zero inventory If one states we need to achieve zero inventory in our process", how will you respond? By littles law Inv flow rate x flow time
Zero inventory? • If one states “we need to achieve zero inventory in our process”, how will you respond? • By Little’s Law, Inv = flow rate * flow time
5 Reasons for inventory 1)Seasonal Economy of scale Nenu Shipment Armies Christmas e.g., transportation, 2)Seasonal to take adv. of Ha arrests quant. discounts 2. Seasonal in At 12345678910112131415161718192021 3. Cycle inventory 4. Decoupling inventory/buffers Cumulative 1,200 Safety Inventory at 5. Sat Inflow and vent Blood Bank Outflow Central DC giona Inventory HK Vend demand uncertainty - To mai Supply uncertainty Days of the Month
5 Reasons for inventory 1. Pipeline inventory 2. Seasonal inventory 3. Cycle inventory 4. Decoupling inventory/buffers 5. Safety inventory 1) Seasonal demand Christmas, Chinese NY, etc. 2) Seasonal supply Harvests Economy of scale e.g., transportation, to take adv. of quant. discounts Central DC -> Regional DC -> Retailers HK Vendor -> US OEM (brand owner) =) To maintain independence of operations Demand uncertainty Supply uncertainty
Reasons against holding Inventory Interest/Opportunity costs Holding (or carrying)cost Building lease, insurance . etc Depreciation of inventory value Damages while in-hold Hides production/operations problems
Reasons against Holding Inventory • Interest/Opportunity costs • Holding (or carrying) cost • Building lease, insurance, etc. • Depreciation of inventory value • Damages while in-hold • Hides production/operations problems