Ch. 9 SCM: Managing Inv in the Supply Chain

Inventory in the Firm: Consumer Packaged Goods(CPG)

-along with wholesalers and retailers that are a part of their DC's face challenges in keeping inventories at acceptable levels b/c of the difficulty of forecasting demand -and the increase in expectations from customers concerning product availability

Materials Requirements Planning(MRP)

-deals with supplying materials and component parts whose demand dependson the demand for a specific end product

Distribution Requirements Planning(DRP)

-determines replenishment schedules between an orgs manuf facilities and its DC's

Fixed Order Quantity Approach(EOQ)

-involves ordering a fixed amount of product each time reordering takes place -the exact amount of product to be ordered depends on the products cost and demand and on relevant inventory carrying and reordering costs

Inventory Cost: Setup Cost

-refers to the expense of changing or modifying a production or assembly process to facilitate line changeovers -Ex. Fixed:use of capital equipment needed to change over prod or ass Variable: personnel costss incurred during this process

Inventory Costs: Ordering Cost

-refers to the expense of placing an order for additional inventory and does not include the cost or expense of the product itself -varibale and fixed components

Inventory Costs: Stockout Cost

-the cost assocaited with not having a product available to meet demand.

Inventory Carrying Cost

-those that incurred by inventory at rest and waiting to be used. - From a finished good perspective, these costs associated with manufacturing and moving inv from a plant to a DC to await order

Inventory Costs: Capital Costs(Hurdle Rate)

-to calculate capital cost for inv decision making -DEF: the minimum rate of return on new investments

Fixed Order Quantity Approach: Reorder Point

-to use the Fixed order Quantity(EOQ) approach, you need this -to develop a minimum stock level to determine when to reorder the fixed quantity -when units of an item in inv reaches this, the Fixed Order quantity(eoq) is ordered

Vendor Managed Inventory(VMI)

-used by an org to manage its inventories held in customers DC's

Inventory Costs: Capital Costs(Weighted Average Cost of Capital)

-weighted average percent of debt service of all external souces of funding, including both equity and debt. -reflects direct debt service costs of having capital tied up in inv

Managing Inv: Dependent Demand

-when demand is directly related to or derives from the demand for antother inventory item or product ex. demand for computer chip

Managing Inv: InDependent Demand

-when such demand is unrelated to the demand for other items Ex. demand for a laptop

5 Reasons to accumulate Inv

1. Batch Economies or Cycle Stocks 2. Uncertaintity and Safety Stocks 3. time in tranist and WIP stock 4. Seasonal Stocks 5. Anticaptory Stocks

Four Major Components of Inventory Carrying Cost

1. Capital Cost(largest component) 2. Storage space cost 3. Inventory Sevice Cost 4. Inv Risk Cost

Difference among Managing Inv

1. Dependent vs Independent Demand 2. Pull vs Push 3. System wide versus single facility solutions

Types of Inventory Costs

1. Inventory Carrying Costs 2. Order and Setup Cost 3. Expected Stockout Cost 4. Inventory in transit carrying cost

Factors to Effectively Manage Inv

1. Real time order management systems 2. Improved tech to manage logistics 3. more flexible and reliable trans resources 4. improvements in the ability to position Inv

Just in Time Delivery System Benefits

1. reduces overstokcing or shortings 2. maximizes utilization of resources 3. Good relations with suppliers 4. Reduces lead time and setup times

Inventory Cost important in 3 ways

1. represent a significant component of logistics costs 2. inv levels that a org maintains at nodes in its logistics network will affect the level of service the org can offer its customers 3. Cost tradeoff decisions in logistics frequently depend on and ultimately impact inventory carrying costs

Batching Economies or Cycle Stocks

Arise form Three sources: 1. Procurement 2. Production 3. Transportation --accumulation of inventory that will not be used or sold immediatly