Supply Chain Management Notes For Distribution Planning

L#4-6: Multi Period Inventory Modelling
SCM 2015, IIM Lucknow
Inventory Management
Multi-Period Inventory Systems
Sushil Kumar, PhD

IIM Lucknow
Three Levels of Inventory Decisions
Supply Chain Decisions (strategic)
Deployment Decisions (strategic)
What are the potential alternatives to inventory?

How should the product be designed?
What items should be carried as inventory?
In what form should they be maintained?
How much of each should be held and where?
Replenishment Decisions (tactical/operational)
How often should inventory status be determined?

When should a replenishment decision be made?
How large should the replenishment be?
SK/SCM2015/L#4-6/2
Dr. Sushil
What factors influence inventory

replenishment models?
SK/SCM2015/L#4-6/3

These systems ensure the material availability on ongoing basis
throughout the year.
Items are ordered multiple times throughout the year
System logic dictates:
Actual quantity ordered
Timing of the order
SK/SCM2015/L#4-6/4
Dr. Sushil
Fixed-order quantity models are Event Triggered
when inventory drops to a certain level (R)

Occur at any time depending on the demand rate
Continuous monitoring is needed and also known as
Perpetual system
Fixed-time period models are Time triggered in which
Time to reorder is predetermined
Orders at fixed times quantity depending on demand

rate and therefore monitoring is required periodically.
SK/SCM2015/L#4-6/5

Multi-Period Inventory Models
Fixed-Order Quantity Models
Event triggered (Example: running out of stock)
Economic Order Quantity (EOQ Model)
Q-Model
Fixed-Time Period Models
Time triggered (Example: Monthly sales call by sales
representative)
Periodic system
Periodic review system
Fixed order interval system
P-Model
SK/SCM2015/L#4-6/6
Dr. Sushil
Multi-Period Inventory Systems:

Some Differences
Fixed-order quantity model favours more expensive items

Fixed-order quantity model more appropriate for important
items
Fixed-order quantity model require more time to maintain:
each activity is logged
Fixed-time period model has a larger average inventory
SK/SCM2015/L#4-6/7
Multi-Period Inventory Systems:

Some Differences
Feature
Q-Model
P-Model
Order Quantity
Q constant
q variable
When to place order
Recordkeeping
At review period
Inventory size
Each addition/
withdrawal
Smaller
Time to maintain
Higher
Type of items
A, V, X, H
Larger
SK/SCM2015/L#4-6/8
Dr. Sushil
Fixed-Order Quantity System
Idle state
Waiting for demand
No
Demand occurs
Units withdrawn
from inventory
or backordered
Compute inventory position

Position = on hand
+ on order - backorder
Is position
reorder point?
Yes
Issue an order for

exactly Q units
SK/SCM2015/L#4-6/9
Fixed-Time Period Reordering System

Idle state
Waiting for demand
Demand occurs
Units withdrawn
from inventory
or backordered
No
Has review
time arrived?
Issue an order for the

Number of units needed
Yes
Compute inventory position

Position = on hand
+ on order - backorder
Compute order quantity

to bring inventory
up to required level
SK/SCM2015/L#4-6/10
Dr. Sushil
Fixed-Order Quantity Model:

Model Assumptions
Demand for the product is constant and uniform

throughout the period
Lead time (time from ordering to receipt) is constant
Price per unit of product is constant
Inventory holding cost is based on average inventory
Ordering or setup costs are constant
All demands for the product will be satisfied (No back

orders are allowed)
SK/SCM2015/L#4-6/11
Inventory Terminology
TC = Total annual cost

D = Demand
C = Cost per unit
Q = Order quantity
S = Cost of placing an order or setup cost
H = Annual holding and storage cost per unit of inventory
R = Reorder point
L = Lead time
SK/SCM2015/L#4-6/12
Dr. Sushil
Basic Fixed-Order Quantity Model and

Reorder Point Behavior
4. The cycle then repeats.
1. You receive an order quantity Q.
Number
of units
on hand
2. You start using

them up over time.
L
Time
R = Reorder point
Q = Economic order quantity
L = Lead time
L
3. When you reach down to
a level of inventory of R,
you place your next Q
sized order.
SK/SCM2015/L#4-6/13
Inventory Costs
Costs associated with ordering too much (represented by

carrying costs)
Costs associated with ordering too little (represented by
ordering costs)
These costs are opposing costs, i.e., as one increases the
other decreases
TC = Total annual cost
D = Demand
C = Cost per unit
Q = Order quantity
S = Cost of placing an order or setup cost
H
= Annual holding and storage cost per unit of inventory
R
L
= Reorder point
= Lead time
SK/SCM2015/L#4-6/14
Dr. Sushil
Basic EOQ Model
Typical assumptions made

annual demand (D), carrying cost (H) and ordering cost (S) can be
estimated
average inventory level is the fixed order quantity (Q) divided by 2
which implies
no safety stock;
orders are received all at once
demand occurs at a uniform rate
no inventory when an order arrives
Stockout, customer responsiveness, and other costs are
inconsequential
acquisition cost is fixed, i.e., no quantity discounts
Annual carrying cost = (average inventory) x (carrying cost) = (Q/2)H
Annual ordering cost = (average number of orders per year) x
(ordering cost) = (D/Q)S
SK/SCM2015/L#4-6/15
Cost Minimization Goal

By adding the item, holding, and ordering costs together, we
determine the total cost curve, which in turn is used to find
the Qopt inventory order point that minimizes total costs
COST
Total Cost
Holding
Costs
Annual Cost of
Items (DC)
Ordering Costs
QOPT
Order Quantity (Q)
SK/SCM2015/L#4-6/16
Dr. Sushil
Basic Fixed-Order Quantity (EOQ)

Model Formula
Total
Annual =
Cost
Annual
Annual
Annual
Purchase + Ordering + Holding
Cost
Cost
Cost
TC=Total annual cost

D =Demand
C =Cost per unit
Q =Order quantity
S =Cost of placing an
order or setup cost
R =Reorder point
L =Lead time
H=Annual holding and
storage cost per unit of
inventory
SK/SCM2015/L#4-6/17
Deriving the EOQ

Common point on both cost curves would indicate an optimal point
Using calculus, we take the first derivative of the total cost

function with respect to Q, and set the derivative (slope)
equal to zero, solving for the optimized (cost minimized)
value of Qopt
SK/SCM2015/L#4-6/18
Dr. Sushil
Other EOQ related Parameters
Optimal cycle length
We also need a
reorder point to
tell us when to
place an order
SK/SCM2015/L#4-6/19
EOQ Example (1)

Given the information below, what are the EOQ and reorder
point?
Annual Demand = 1,000 units
Days per year considered in average daily demand = 365
Cost to place an order = $10 Holding cost per unit per year = $2.50
Lead time = 7 days
Cost per unit = $15
In summary, you place an optimal order of 90 units. In the

course of using the units to meet demand, when you only
have 20 units left, place the next order of 90 units.
SK/SCM2015/L#4-6/20
Dr. Sushil
10
Example: Basic EOQ

Zartex Co. produces fertilizer to sell to wholesalers.
One raw material calcium nitrate is purchased from a
nearby supplier at $22.50 per ton. Zartex estimates it will
need 5,750,000 tons of calcium nitrate next year.
The annual carrying cost for this material is 40% of
the acquisition cost, and the ordering cost is $595.
a) What is the most economical order quantity?
b) How many orders will be placed per year?
c) How much time will elapse between orders?
SK/SCM2015/L#4-6/21
Example: Basic EOQ
Economical Order Quantity (EOQ)

D = 5,750,000 tons/year
H = .40(22.50) = $9.00/ton/year
S = $595/order
= 27,573.135 tons per order
SK/SCM2015/L#4-6/22
Dr. Sushil
11
Example: Basic EOQ
Total Annual Stocking Cost (TSC)

TSC = (Q/2)H + (D/Q)S
= (27,573.135/2)(9.00) + (5,750,000/27,573.135)(595)
= 124,079.11 + 124,079.11
= $248,158.22
Number of Orders Per Year = D/Q
= 5,750,000/27,573.135 = 208.5 orders/year
Time Between Orders = Q/D
= 1/208.5
= .004796 years/order
= .004796(365 days/year) = 1.75 days/order
SK/SCM2015/L#4-6/23
EOQ Limitations
When batch set-up costs are high, EOQ suggests very large
batches.
Complicates production scheduling
Give longer lead times to customers
Needs excess inventory storage
Too much capital in stocks
Solution? Artificially high value on holding cost
EOQ suggests fractional value
Suppliers unwilling to split standard package sizes
Deliveries by vehicles with fixed capacities
More convenient to round order size
If you shift from EOQ, what happens to the cost?
SK/SCM2015/L#4-6/24
Dr. Sushil
12
An Example
D = 6000
C = 30 S = 125
EOQ = Qo =
H=7
= 462.91
VCo = H x Q = 3,240.37
At 450?
At 500?
VC = DS/Q + QH/2 = 3,241.67

VC = DS/Q + QH/2 = 3,250.00
For 450
For 500
Batch 2.8% below optimal Cost 0.04% High

Batch 8% above optimal Cost 0.3% High
SK/SCM2015/L#4-6/25
How Robust is the EOQ Model

Impact on cost with changes in order quantity near EOQ
Annual Cost
The Total-Cost Curve is U-Shaped
Ordering Costs
QO (optimal order quantity)
Order Quantity
(Q)
SK/SCM2015/L#4-6/26
Dr. Sushil
13
Example
Mae Chow Min works in her bakery for 6 days a week for 49
weeks a year. Flour is delivered directly with a charge of $7.5
for each delivery. Chow Min uses an average of 10 sacks of
whole-grain flour a day, for which she pays $12 a sack. She has
an overdraft at the bank which costs 12 per cent a year, with
spillage, storage, loss and insurance costing 6.75 per cent a year.
A.
B.
C.
D.
What size of delivery should Chow Min use and what are
the resulting costs?
How much should she order if the flour has a shelf life of
2 weeks?
How much should she order if the bank imposes a
maximum order value of $1,500?
If the mill only delivers on Mondays, how much she
order and how often?
SK/SCM2015/L#4-6/27
Uncertainty in Demand
Assumption was demand in known

Suppose we have erred by E percent
Then demand would be D(1+E)
VC/VCo = [Qo/Q + Q/Qo]
SK/SCM2015/L#4-6/28
Dr. Sushil
14
Uncertainty in Costs
Assumption was costs are known

Ordering cost and holding cost
Suppose we have taken extra E1 and E2 respectively
Calculations would then have been for
Ordering Cost = S(1+E1)
Holding Cost = H(1+E2)
VC/VCo = [Qo/Q + Q/Qo]
SK/SCM2015/L#4-6/29
Economic Production Quantity (EPQ)
Production
& Usage
Production done in batches or lots

Capacity to produce a part exceeds the parts usage or demand rate
Assumptions of EPQ are similar to EOQ except orders are received
incrementally during production
Usage
Production
& Usage
Usage
SK/SCM2015/L#4-6/30
Dr. Sushil
15
Economic Production Quantity Assumptions
Only one item is involved

Annual demand is known
Usage rate is constant
Usage occurs continually
Production rate is constant
Lead time does not vary
No quantity discounts
Economic Run Size
SK/SCM2015/L#4-6/31
Example for Economic Production Quantity
A toy manufacturer uses 48000 rubber-wheels per

year for its popular dump truck series. The firm
makes its own wheels, which it can produce at a rate
of 800 per day. The toy trucks are assembled
uniformly over the entire year. Holding cost is $1
per wheel a year. Setup cost for a production run of
wheels is $45. the firm operates 240 days per year.
Determine the
a.
b.
c.
d.
Optimal run size

Minimum total annual cost for carrying and setup
Cycle time for the optimal run size
Run time
SK/SCM2015/L#4-6/32
Dr. Sushil
16
Procedure to Find Best Order Size

1 Take the next
lowest unit cost
Start
2 Find the lowest

point using Qo
Calculate the cost

4 at the break point
on the left of the
valid range
No
Is this
point
valid?
Yes
Compare the
7 costs of all the
points considered
Find the lowest

cost and
6
corresponding
order size
Calculate the
5 cost at this valid
minimum
Finish
SK/SCM2015/L#4-6/33
Quantity Discounts
All-Units Discount Order Cost Function
SK/SCM2015/L#4-6/34
Dr. Sushil
17
Quantity Discounts
Incremental Discount Order Cost Function
SK/SCM2015/L#4-6/35
All-Units Quantity Discounts:

An Example for Constant Holding Cost
The maintenance department of Malamara hospital
uses about 816 cases of liquid cleanser annually.
Ordering costs are $12, holding costs are $4 per case a
year, and the new price schedule indicates that orders
are less than 50 cases will cost $20 per case, 50 to 79
cases will cost $18 per case, 80 to 99 cases will cost
$17 per case, and larger orders will cost $16 per case.
Determine the optimal order quantity and the total cost.
SK/SCM2015/L#4-6/36
Dr. Sushil
18
Quantity Discounts:
An Example for Proportionate Holding Cost
SK/SCM2015/L#4-6/37
Quantity Discounts:
Surge Electric uses 4,000 toggle switches a year.

Switches are priced as follows: 1 to 499, 90 cents each;
500 to 999, 85 cents each; and 1000 or more, 80 cents
each. It costs approximately $30 to prepare an order
and receive it, and holding costs 40% of purchase price
per unit on an annual basis. Determine the optimal
order quantity and the total annual cost.
SK/SCM2015/L#4-6/38
Dr. Sushil
19
All-Units Discount Quantity :

The Weighty Trash Bag Company has the following price

schedule for its large trash can liners.
For orders up to 500 bags, the company charges 30 cents
per bag; for orders of more than 500 but 1,000 or less bags,
it charges 29 cents per bag; and for orders more than 1,000,
it charges 28 cents per bag.
The company considering what standing order to place
with Weighty uses trash bags at a fairly constant rate of 600
per year. The accounting department estimates that the
fixed cost of placing an order is $8, and holding costs are
based on a 20 percent annual interest rate.
SK/SCM2015/L#4-6/39
Average Annual Cost Function

for Incremental Discount Schedule
SK/SCM2015/L#4-6/40
Dr. Sushil
20
Planned Shortages with Back Orders

Shortages are when demand is not met from stock.
Useful when:
It is more likely when:
Shortages are not expensive

Planned shortages are beneficial, e.g., Car dealer,
furniture shop
Unit cost is high
Wide range of items
Extreme case is Make-to-Order
SK/SCM2015/L#4-6/41
Planned Shortages with Back Orders
Optimal Order size

Optimal amount to
be back-ordered
SK/SCM2015/L#4-6/42
Dr. Sushil
21
Example for Shortages with Back Orders

Demand for an item is constant at 100 units a month.
Unit cost is 50, reorder cost is 50, holding cost is 25%
of value a year, shortage cost for back orders is 40% of
value a year. Find an optimal inventory policy for the
item.
SK/SCM2015/L#4-6/43
Order-Point Determination
SK/SCM2015/L#4-6/44
Dr. Sushil
22
Stock-Out Occurrence
SK/SCM2015/L#4-6/45
Quantity
Safety Stock
Maximum probable demand

during lead time
Expected demand
during lead time
R
Safety stock reduces risk of
stockout during lead time
Safety stock
L
Time
SK/SCM2015/L#4-6/46
Dr. Sushil
23
Inventory Level with Safety Stock
SK/SCM2015/L#4-6/47
When to Reorder with EOQ Ordering
Reorder Point - When the quantity on

hand of an item drops to this amount, the
item is reordered
Safety Stock - Stock that is held in excess
of expected demand due to variable
demand rate and/or lead time.
Service Level - Probability that demand
will not exceed supply during lead time.
SK/SCM2015/L#4-6/48
Dr. Sushil
24
Determinants of the Reorder Point

The rate of demand
The lead time
Demand and/or lead time variability
Stockout risk (safety stock)
SK/SCM2015/L#4-6/49
Reorder Point
The ROP based on a normal
Distribution of lead time demand
Service level
Risk of
a stockout
Probability of
no stockout
Expected
demand
0
ROP
Quantity
Safety
stock
z
z-scale
SK/SCM2015/L#4-6/50
Dr. Sushil
25
Basis for Setting the Reorder Point
The reorder point is set based on

the demand during lead time (DDLT) and
the desired customer service level
Reorder point (R) = Expected demand during lead
time (EDDLT) + Safety stock (SS)
The amount of safety stock needed is based on the
degree of uncertainty in the DDLT and the customer
service level desired
SK/SCM2015/L#4-6/51
DDLT Distributions
If there is variability in the DDLT, the DDLT is

expressed as a distribution
Discrete
(Integer values)
Continuous
(Valid for high demand)
SK/SCM2015/L#4-6/52
Dr. Sushil
26
Reorder Point for a Discrete DDLT Distribution
Assume a probability distribution of actual DDLTs is

given or can be developed from a frequency
distribution
Starting with the lowest DDLT, accumulate the
probabilities. These are the service levels for DDLTs
Select the DDLT that will provide the desired customer
level as the reorder point
SK/SCM2015/L#4-6/53
Example for Setting Reorder Point

One of Sharp Retailers inventory items is now being
analyzed to determine an appropriate level of safety
stock. The manager wants an 80% service level
during lead time. The items historical DDLT is:
DDLT (cases)
Occurrences
3
8
4
6
5
4
6
2
SK/SCM2015/L#4-6/54
Dr. Sushil
27

Construct a Cumulative DDLT Distribution
DDLT (cases)
2
3
4
5
6
Probability
of DDLT
0
.4
.3
.2
.1
Probability of
DDLT or Less
0
.4
.7
.8
.9
1.0
To provide 80% service level, R = 5 cases

SK/SCM2015/L#4-6/55

Safety Stock (SS)
R
= EDDLT + SS
SS
= R - EDDLT
EDDLT = .4(3) + .3(4) + .2(5) + .1(6) = 4.0
SS
=54= 1
SK/SCM2015/L#4-6/56
Dr. Sushil
28
Continuous DDLT Distribution
SK/SCM2015/L#4-6/57

Z
Percentage
of Cycles
with shortages
Cycle
service
Level
(%)
0.00
0.84
1.00
1.04
1.28
1.48
1.64
1.88
2.00
2.33
2.58
3.00
50.0
20.0
15.9
15.0
10.0
7.0
5.0
3.0
2.3
1.0
0.5
0.1
50.0
80.0
84.1
85.0
90.0
93.0
95.0
97.0
97.7
99.0
99.5
99.9
SK/SCM2015/L#4-6/58
Dr. Sushil
29
Reorder Point for a

average demand during lead time
standard deviation of demand during lead time
Safety Stock =
Reorder point =
SK/SCM2015/L#4-6/59
Reorder Point for a

The resulting DDLT distribution is a normal

distribution with the following parameters:
Standard deviation of a series of independent occurrences is

equal to the square root of the sum of the variances
SK/SCM2015/L#4-6/60
Dr. Sushil
30
Setting Order Point

for a Continuous DDLT Distribution
The customer service level is converted into a Z value

using the normal distribution table
(Or NORSINV function in excel)
The safety stock is computed by multiplying the Z
value by DDLT.
The order point is set using R = EDDLT + SS, or by
substitution
SK/SCM2015/L#4-6/61

Auto Zone sells auto parts and supplies including a
popular multi-grade motor oil. When the stock of this oil
drops to 20 units, a replenishment order is placed. The store
manager is concerned that sales are being lost due to stockouts
while waiting for an order. It has been determined that lead
time demand is normally distributed with a mean of 15 units
and a standard deviation of 6 units.
The manager would like to know the probability of a
stockout during lead time.
SK/SCM2015/L#4-6/62
Dr. Sushil
31
EDDLT = 15 units
DDLT = 6 units
R = EDDLT + Z(DDLT )
20 = 15 + Z(6)
Standard Normal Distribution
5 = Z(6)
Z = 5/6
Area = .2967
Z = .833
Area = .2033
Area = .5
SK/SCM2015/L#4-6/63
z
0 .833
The Standard Normal table shows an area of .2967

for the region between the z = 0 line and the z = .833
line. The shaded tail area is .5 - .2967 = .2033.
The probability of a stockout during lead time is
.2033
SK/SCM2015/L#4-6/64
Dr. Sushil
32
Rules of Thumb in Setting Reorder Point
Set safety stock level at a percentage of EDDLT

where j is a factor between 0 and 3.
OP = EDDLT + j (EDDLT)
Class
Description
1
2
3
4
5
6
Uncritical
Uncertain-uncritical
Critical
Uncertain-critical
Supercritical
Uncertain-supercritical
0.1
0.2
0.3
0.5
1.0
3.0
Set safety stock level at square root of EDDLT

When stockouts are not
particularly undesirable
SK/SCM2015/L#4-6/65
Fixed Time Period Models

Also known as Fixed Order Interval Model
Orders are placed at fixed time intervals
Order quantity for next interval?
Suppliers might encourage fixed intervals
May require only periodic checks of inventory
levels
Risk of stockout
SK/SCM2015/L#4-6/66
Dr. Sushil
33
Fixed Time Period Benefits
Tight control of inventory items

Items from same supplier may yield savings in:
Ordering
Packing
Shipping costs
May be practical when inventories cannot be closely
monitored
Fixed Time Period Disadvantages
Requires a larger safety stock

Increases holding/carrying cost
Costs of periodic reviews
SK/SCM2015/L#4-6/67
Behavior of Fixed Time Period Systems
As demand for the inventoried item occurs, the inventory level drops
When a prescribed period of time has elapsed, the ordering process
is triggered, i.e., the time between orders is fixed or constant
At that time the order quantity is determined by finding out the
average demand during the vulnerable period plus some safety stock
and subtracting current inventory level on hand plus on order if any.
After the lead time elapses, the ordered quantity is received , and the
inventory level increases
The upper inventory level may be determined by the amount of
space allocated to an item
This system is used where it is desirable to physically count
inventory each time an order is placed
SK/SCM2015/L#4-6/68
Dr. Sushil
34
Fixed-Time Period Model

with Safety Stock Formula
q = Average demand + Safety stock Inventory currently on hand
SK/SCM2015/L#4-6/69
Determining Quantity in Fixed period Model
Using an approach similar to that used to derive EOQ, the

optimal value of the fixed time between orders is derived to be
Determining the Value of T+L
The standard deviation of a sequence of random events equals

the square root of the sum of the variances.
SK/SCM2015/L#4-6/70
Dr. Sushil
35
Example of the Fixed-Time Period Model

Given the information below, how many units should be ordered?
Average daily demand for a product is 20 units. The review
period is 30 days, and lead time is 10 days. Management has set
a policy of satisfying 96 percent of demand from items in stock.
At the beginning of the review period there are 200 units in
inventory. The daily demand standard deviation is 4 units.
SK/SCM2015/L#4-6/71
Example Solution
z is found by using the Excel NORMSINV function.

For a probability 0.96, z = 1.75
So, to satisfy 96 percent of the demand, you should

place an order of 645 units at this review period
SK/SCM2015/L#4-6/72
Dr. Sushil
36
Order-Up-to-Level in a
Periodic Review System
SK/SCM2015/L#4-6/73
Period of Time an Order Must Cover
SK/SCM2015/L#4-6/74
Dr. Sushil
37
Hybrid Inventory Models
Optional replenishment model

Similar to the fixed order period model
Unless inventory has dropped below a prescribed
level when the order period has elapsed, no order
is placed
Protects against placing very small orders
Attractive when review and ordering costs are
large
SK/SCM2015/L#4-6/75
Hybrid Inventory Models:

Optional Replenishment System
Maximum Inventory Level, M
q=M-I
Actual Inventory Level, I
M
I
Q = minimum acceptable order quantity
If q > Q, order q, otherwise do not order any.

SK/SCM2015/L#4-6/76
Dr. Sushil
38

Base Stock Model
Start with a certain inventory level
Whenever a withdrawal is made, an order of equal
size is placed
Ensures that inventory maintained at an
approximately constant level
Appropriate for very expensive items with small
ordering costs
SK/SCM2015/L#4-6/77

Single Bin System
Essentially a P system
Target inventory level and current inventory
position IP are established
Order Enough to
Refill Bin
SK/SCM2015/L#4-6/78
Dr. Sushil
39

Two-Bin System
Essentially a Q system
When the first bin is empty, it triggers the
replenishment order
The second bin contains an amount equal to
safety stock,
or the average demand during the lead time
plus the safety stock.
Order One Bin of
Inventory
Full
Empty
SK/SCM2015/L#4-6/79
Inventory Accuracy and Cycle Counting
Inventory accuracy refers to how well the

inventory records agree with physical count
Cycle Counting is a physical inventory-taking
technique in which inventory is counted on a
frequent basis rather than once or twice a year
SK/SCM2015/L#4-6/80
Dr. Sushil
40

Supply Chain Management Notes For Distribution Planning

Hochgeladen von

Dokumentinformationen

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Supply Chain Management Notes For Distribution Planning

Hochgeladen von

Copyright:

Verfügbare Formate

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Sushil Kumar, PhD

Three Levels of Inventory Decisions

Supply Chain Decisions (strategic)

Deployment Decisions (strategic)

What are the potential alternatives to inventory?

Replenishment Decisions (tactical/operational)

How often should inventory status be determined?

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

What factors influence inventory

Multi-Period Inventory Systems

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Multi-Period Inventory Systems

Fixed-order quantity models are Event Triggered

when inventory drops to a certain level (R)

Fixed-time period models are Time triggered in which

Time to reorder is predetermined

Orders at fixed times quantity depending on demand

Multi-Period Inventory Systems

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Multi-Period Inventory Systems:

Fixed-order quantity model favours more expensive items

Multi-Period Inventory Systems:

When to place order

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Fixed-Order Quantity System

Compute inventory position

Issue an order for

Fixed-Time Period Reordering System

Issue an order for the

Compute inventory position

Compute order quantity

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Fixed-Order Quantity Model:

Demand for the product is constant and uniform

Lead time (time from ordering to receipt) is constant

Price per unit of product is constant

Inventory holding cost is based on average inventory

Ordering or setup costs are constant

All demands for the product will be satisfied (No back

TC = Total annual cost

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Basic Fixed-Order Quantity Model and

1. You receive an order quantity Q.

2. You start using

Costs associated with ordering too much (represented by

= Annual holding and storage cost per unit of inventory

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Basic EOQ Model

Typical assumptions made

Cost Minimization Goal

L#4-6: Multi Period Inventory Modelling

SCM 2015, IIM Lucknow

Basic Fixed-Order Quantity (EOQ)

TC=Total annual cost

Deriving the EOQ