Supply Chain Chapter 11

Type of Inventory Systems

1. Fixed-order Quantity System 2. Fixted Time Period System

Cycle Stock

1. To meet customer demand * Immediately fill customer orders * Deploy the product / material near where it will be used

Types of Inventory

Internal & External

Pipeline Inventory

Inventory in transit. Inventory held / owned by suppliers, or by wholesalers, distributors, retailers, and customers.

What are aspect of Internal Inventory Held by companies to:

meet customer demand buffer against uncertainty in demand and/or supply decouple supply from demand decouple dependencies in the supply chain

External Inventory

* Inventory held by downstream supply chain channel partners * Pipeline Inventory

What is the primary function of Inventory

1. Buffer * Buffer uncertainty in the marketplace & 2. Decouple * dependencies in the supply chain (safety stock) Maintaining adequate finished product inventory allows a company to fill customer orders immediately Maintaining adequate materials inventory allows a company to support manufacturing operations and the production plans.

What are the three levels of internal inventory held by companies:

1. Strategic Stock 2. Safety Stock 3. Cycle Stock

Strategic Stock

1. To Decouple Supply from Demand: Supply pattern is different from demand pattern: Achieve economies of scale in production or procurement Take advantage of volume price breaks and discounts Speculative buying in anticipation of a price increase Seasonal product demand requirements

Goal of Inventory

1. inventory management is to meet customer expectations while also meeting the company's financial targets. * Enable Sales * Increase profitability * Improve Cash Flow

Reorder point =

Demand (D) during lead time

The reorder point:

The lowest inventory level at which a new order must be placed to avoid a stockout is known as the

Safety Stock

To Buffer Against Uncertainty and Decouple Dependencies in the Supply Chain Uncertainty in demand: sales or usage above expectations Uncertainty in supply: shortages, delays, disruptions Separating operational dependencies

Categories of Inventory

raw materials used in production, work-in-process items (semi-produced but not complete) finished products to provide customer service, maintenance, repair, and operating supplies needed to run a business