Holding the right amount at theright time is difficult!Dell Computer'swas sharply off in itsforecast ofdemand,resulting in inventory write-downs1993stockplungeLiz Claiborne's higher-than-anticipated excessinventories1993unexpectedearningsdeclineIBM'sineffectiveinventorymanagement1994shortagesintheThinkPad lineCisco'sdecliningsales2001$2.25Bexcess inventorycharge2-16
2-16 Holding the right amount at the right time is difficult! ⚫ Dell Computer’s was sharply off in its forecast of demand, resulting in inventory write-downs ⚫ 1993 stock plunge ⚫ Liz Claiborne’s higher-than-anticipated excess inventories ⚫ 1993 unexpected earnings decline, ⚫ IBM’s ineffective inventory management ⚫ 1994 shortages in the ThinkPad line ⚫ Cisco’s declining sales ⚫ 2001 $ 2.25B excess inventory charge
Inventory Management-DemandForecastsUncertaindemandmakesdemandforecastcriticalforinventoryrelateddecisions:Whatto order?Whentoorder?How much is the optimal order quantity?Approach includesa set of techniguesINVENTORY POLICY!!2-17
2-17 Inventory Management-Demand Forecasts ⚫ Uncertain demand makes demand forecast critical for inventory related decisions: ⚫ What to order? ⚫ When to order? ⚫ How much is the optimal order quantity? ⚫ Approach includes a set of techniques ⚫ INVENTORY POLICY!!
Supply Chain Factors in InventoryPolicyEstimationofcustomerdemandReplenishment leadtimeThe number of different products being consideredThelengthoftheplanninghorizonCostsOrdercost:·Product costTransportationcostInventory holding cost,or inventory carrying cost:Statetaxes,propertytaxes,andinsuranceoninventoriesMaintenancecostsObsolescencecost福·OpportunitycostsServicelevelrequirements2-18
2-18 Supply Chain Factors in Inventory Policy ⚫ Estimation of customer demand ⚫ Replenishment lead time ⚫ The number of different products being considered ⚫ The length of the planning horizon ⚫ Costs ⚫ Order cost: ⚫ Product cost ⚫ Transportation cost ⚫ Inventory holding cost, or inventory carrying cost: ⚫ State taxes, property taxes, and insurance on inventories ⚫ Maintenance costs ⚫ Obsolescence cost ⚫ Opportunity costs ⚫ Service level requirements
2.2 Single Stage InventoryControlSingle supply chain stageVariety oftechniquesEconomicLotSize ModeDemand UncertaintySingle Period ModelsInitial InventoryMultiple Order OpportunitiesContinuous Review PolicyVariable Lead TimesPeriodic Review PolicyService Level Optimization2-19
2-19 2.2 Single Stage Inventory Control ⚫ Single supply chain stage ⚫ Variety of techniques ⚫ Economic Lot Size Model ⚫ Demand Uncertainty ⚫ Single Period Models ⚫ Initial Inventory ⚫ Multiple Order Opportunities ⚫ Continuous Review Policy ⚫ Variable Lead Times ⚫ Periodic Review Policy ⚫ Service Level Optimization
2.2.1. Economic Lot Size ModelOrdersizeAverageTimeFIGURE2-3:Inventorylevelasafunctionoftime2-20
2-20 2.2.1. Economic Lot Size Model FIGURE 2-3: Inventory level as a function of time