Inventory Costs - Ordering (or setup) cost - Paperwork, worker time (ordering), worker time, downtime (setup),

Typically expressed as a fixed cost per order or setup. , Carrying (or holding) cost: Cost of capital (market rate or internal rate of return), Cost of storage (building, utilities, insurance, handling), Cost of obsolescence, deterioration, and loss (shrinkage), Management cost (record keeping, counting), Shrinkage, Stock out cost (back order or lost sales)

EOQ Model Assumptions - Demand rate is constant, recurring, and known, Lead time is constant and known., No stockouts allowed, Material is ordered or produced in a lot or batch and the lot is received all at once, Costs are constant, Unit cost is constant (no quantity discounts), Carrying cost is a constant per unit (SKU), Ordering (setup) cost per order is fixed, The item is a single product or SKU. Production Order Quantity - Used when inventory builds up over a period of time after an order is placed, Used when units are produced and sold simultaneously

Continuous Review System - Relax assumption of constant demand. Demand is assumed to be random., Check inventory position each time there is a demand (i.e continuously), If inventory position drops below the reorder point, place an order for the EOQ., Also called fixed-order-quantity or Q system (the fixed order size is EOQ) Amount to order = EOQ, Order when inventory position = reorder point Reorder point = lead time * demand/period= R= lead time demand (when demand is constant), Reorder point is independent of EOQ!, EOQ tells how much to order., Reorder point tells when to order Periodic Review System - Instead of reviewing continuously, we review the inventory position at fixed intervals. For example, the bread truck visits the grocery store on the same days every week., Inventory brought up to a target level, Also known as P system, Fixed-order-interval system or Fixed-order-period system , Has a target inventory rather than a reorder point., Does not have EOQ since quantity varies according to demand., The order interval is fixed, not the order quantity.

ABC OF Inventory Management - Based on Pareto concept (80/20 rule) and total usage in dollars of each item., Classification of items as A, B, or C based on usage, Purpose is to set priorities on effort used to manage different SKUs, i.e. to allocate scarce management resources. A items: 20% of SKUs, 80% of dollars, B items: 30 % of SKUs, 15% of dollars, C items: 50 % of SKUs, 5% of dollars, Three classes is arbitrary; could be any number., Percent are approximate., Danger: dollar use may not reflect importance of any given SKU!

2/2/13

SUPPLY Chain Management The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. SUPPLY Chain - The set of entities and relationships that cumulatively define materials and information flows both downstream towards the customer and upstream towards the very first supplier
Plan

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M S R a o et k u e ur Supplier rc Internal or ne External

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Sourc e Retur n

Make

Your Company

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SCOR Model Building Block Approach

S M o a R u k et r Customer e u c r e Internal or n External

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S R o et u Customer u r s r c Customer n e

SCOR = Supply Chain Operations Reference-model

Measuring Supply Chain Performance

Delivery - on time delivery of entire orders, fill rate, lead time Quality - product or service performance, conformance to specifications, customer satisfaction Flexibility - Time to change volume of output by a fixed amount, Time it takes to change the mix of products or services delivered Time 2/2/13 Total throughput time, accounts payable Cash to cash cycle, Days in inventory + days in accts receivable - days in