Holding the right amount at the right time is difficult. o Dell Computers was sharply off in its forecast of demand, resulting in inventory write-downs o 1993 stock plunge o Liz Claiborne's higher-than-anticipated excess inventories o 1993 unexpected earnings decline, o BMs ineffective inventory management o 1994 shortages in the ThinkPad line ● Cisco's declining sales o 2001 $2.25B excess inventory charge 2-16
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-Demand Forecasts Uncertain demand makes demand forecast critical for inventory related decisions: What to order? o When to order? o How much is the optimal order quantity? o Approach includes a set of techniques ●|N∨ ENTORY POL|CY! 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 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
2-18 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 Inventory Control o Single supply chain stage ● Variety of techniques o Economic Lot Size Model ● Demand Uncertainty ● Single period models ● nitial Inventory o Multiple Order Opportunities Continuous Review Policy o Variable lead times ● Periodic Review Policy e Service Level Optimization 2-19
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 model Order SIZ verage T Ime FIGURE 2-3: Inventory level as a function of time 2-20
2-20 2.2.1. Economic Lot Size Model FIGURE 2-3: Inventory level as a function of time