What Are the Opportunities at Custom? o Combine production and inventory for common items, e. g DF R23 o Produce monthly: reduce setups by half and pool safety stocks o Produce twice a month same number of setups but cut cycle stock and review period in half 2-11
2-11 What Are the Opportunities at Custom? ⚫ Combine production and inventory for common items, e. g. DF R23 ⚫ Produce monthly: reduce setups by half and pool safety stocks ⚫ Produce twice a month: same number of setups but cut cycle stock and review period in half
Wrap Up Realistic diagnostic exercise o In real life: not as clean more data and more considerations o Yet simple models and principles can provide valuable guidance
2-12 Wrap Up ⚫ Realistic diagnostic exercise ⚫ In real life: not as clean, more data and more considerations ⚫ Yet simple models and principles can provide valuable guidance
2.1 Introduction Why Is Inventory Important? Distribution and inventory(logistics)costs are quite substantial Total U.S. Manufacturing Inventories (Sm) 1992-01-31:$m808,773 ●1996-08-31:$m1,000,774 ●2006-05-31:$m1,324,108 Inventory-Sales Ratio(U.s. Manufacturers) 1992-01-01:1.56 2006-05-01:1.25
2-13 2.1 Introduction Why Is Inventory Important? Distribution and inventory (logistics) costs are quite substantial Total U.S. Manufacturing Inventories ($m): ⚫ 1992-01-31: $m 808,773 ⚫ 1996-08-31: $m 1,000,774 ⚫ 2006-05-31: $m 1,324,108 Inventory-Sales Ratio (U.S. Manufacturers): ⚫ 1992-01-01: 1.56 ⚫ 2006-05-01: 1.25
Why Is Inventory Important? GM's production and distribution network 20,000 supplier plants 133 parts plants 31 assembly plants ●11000dea|ers Freight transportation costs: $4. 1 billion(60% for material shipments) GM inventory valued at $7.4 billion(70%WIP; Rest Finished Vehicles) Decision tool to reduce combined corporate cost of inventory and transportation 26% annual cost reduction by adjusting Shipment sizes(inventory policy) Routes(transportation strategy)
2-14 ⚫ GM’s production and distribution network ⚫ 20,000 supplier plants ⚫ 133 parts plants ⚫ 31 assembly plants ⚫ 11,000 dealers ⚫ Freight transportation costs: $4.1 billion (60% for material shipments) ⚫ GM inventory valued at $7.4 billion (70%WIP; Rest Finished Vehicles) ⚫ Decision tool to reduce: ⚫ combined corporate cost of inventory and transportation. ⚫ 26% annual cost reduction by adjusting: ⚫ Shipment sizes (inventory policy) ⚫ Routes (transportation strategy) Why Is Inventory Important?
Why Is Inventory Required? o Uncertainty in customer demand Shorter product lifecycles o More competing products Uncertainty in supplies o Quality/Quantity/Costs/Delivery Times o Delivery lead times o Incentives for larger shipments 2-15
2-15 Why Is Inventory Required? ⚫ Uncertainty in customer demand ⚫ Shorter product lifecycles ⚫ More competing products ⚫ Uncertainty in supplies ⚫ Quality/Quantity/Costs/Delivery Times ⚫ Delivery lead times ⚫ Incentives for larger shipments