Chapter 2InventoryManagementand Risk Pooling王长琼2015-4-24
Chapter 2 Inventory Management and Risk Pooling 1 王长琼 2015-4-24
ObjectivesUnderstandinginventoryina supplychainWhyinventoryisimportant?How to manage it?SingleStageInventoryControl- Economic Lot Size Model- Demand UncertaintyMultipleOrderOpportunitiesRiskPooling
Objectives • Understanding inventory in a supply chain Why inventory is important? How to manage it? • Single Stage Inventory Control - Economic Lot Size Model - Demand Uncertainty • Multiple Order Opportunities • Risk Pooling 2
CASE: Steel WorksWhy inventoryis important?How to manage it?: What are the main problems?--- too much inventory--poorservice3
CASE: Steel Works • Why inventory is important? How to manage it? • What are the main problems? - too much inventory - poor service 3
Custom Products(定制产品)Rapid growth, 1/3 of total sales (s133 MM)OnecustomerperproductVery high marginsHigh service level 3 plants, co-located with R&D centerEachproductproducedatasingleplant
Custom Products(定制产品) • Rapid growth, 1/3 of total sales ($133 MM) • One customer per product • Very high margins • High service level • 3 plants, co-located with R&D center • Each product produced at a single plant 4
Specialty ProductsS（特色产品）Rapid growth, 2/3 of total sales ($267 MM)·6 product families3 plants, each producing 2 product families130customers,120productsFew big customers: 5Highly volatile demand:Highservicelevel5
Specialty Products（特色产品） • Rapid growth, 2/3 of total sales ($267 MM) • 6 product families • 3 plants, each producing 2 product families • 130 customers, 120 products • Few big customers: 5 • Highly volatile demand: • High service level 5
Howto solvetheseproblems?-lowerexpenses-improveperformanceConsultant RecommendationDroplowvolumeproductsImproveforecastsConsolidate warehouses6
Consultant Recommendation • Drop low volume products • Improve forecasts • Consolidate warehouses 6 •How to solve these problems? -lower expenses -improve performance
2.1 IntroductionWhat Is Inventory of the supply chain?Where?·Raw material inventory:Work-in-process(WIP) inventory·Finished product inventoryDuality:requiredcost
2.1 Introduction What Is Inventory of the supply chain? Where ? • Raw material inventory • Work-in-process(WIP) inventory • Finished product inventory Duality: cost - required 7
Why Is Inventory management Important?GM's production and distribution network are complex-20,000supplierplants-133partsplantsand 31assemblyplants- 11,000 dealerstransportation costs: $4.1 billion (60% for material shipments)inventory valued at $7.4 billion (70%WiP; Rest FinishedVehicles)Decision toolto reduce:- combined corporate cost of inventory andtransportation.26% annual cost reduction by adjusting- Shipment sizes (inventory policy)-Routes (transportation strategy)
Why Is Inventory management Important? • GM’s production and distribution network are complex – 20,000 supplier plants – 133 parts plants and 31 assembly plants – 11,000 dealers • transportation costs: $4.1 billion (60% for material shipments) • 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) 8
WhyIsInventoryRequired?Uncertaintyin customer demand- Shorter product lifecycles- More competing products Uncertaintyin supplies-Quality/Quantity/Costs/Delivery Times·DeliveryleadtimesIncentives for larger shipments (economy ofscale)9
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 (economy of scale) 9
Holding the rightamount at the right一time isdifficult!Uncertainty of demand and supplyPrediction is always wrongRelationship between forecast demand andthe optimal order quantity10
Holding the right amount at the right time is difficult! 10 • Uncertainty of demand and supply • Prediction is always wrong • Relationship between forecast demand and the optimal order quantity