LOGISTICAL

RESOURCES
PRESENTED BY:
BHUSHAN PAWAR
HARDEEP SINGH
INFORMATION
L.I.S.
 INFORMATION
FUNCTIONALITY
Logistics information systems are the threads that link


logistics
activities into an integrated process.


The integration builds on four levels of functionality:



• Transaction
• Management control
• Decision analysis
• Strategic planning
INFORMATION FUNCTIONALITY
 PRINCIPLES OF LOGISTICS
INFORMATION
§A va ila b ility
§A ccu ra cy
§Tim e lin e ss
§E xce p tio n b a se d LIS
§Flexib ility
§A p p ro p ria te fo rm a t
FORECASTING
 GENERAL FORECAST
CONSIDERATIONS
• The nature of demand.

• Forecast components.

• Forecast approaches.
 THE FORECAST PROCESS
FORECAST PROCESS

FORECAST DATABASE FORECAST USERS

Forecast administration

Forecas
Forecast t
technique support
system
Contd…….
• Forecast technique.

• Forecast support system.

• Forecast administration.
 CRITERIA FOR EVALUATING THE
TECHNIQUES
• Accuracy
• The forecast time horizon
• The value of forecasting
• The availability of data
• The type of data pattern
• The experience of the forecaster
 FORECAST TECHNIQUES

QUALITATIV CASUAL
E TECHNIQUE
TIME
TECHNIQUES S
SERIE
S
 A) QUALITATIVE TECHNIQUES

• Rely heavily on expertise.

• Quite costly and time consuming.
• Require little historical data and
much managerial judgement.
• Developed using surveys, panels and
consensus meetings.
 B) TIME SERIES TECHNIQUES
• Moving average.

• Exponential smoothing.

• Extended smoothing.

• Adaptive smoothing.
C) CASUAL TECHNIQUES
FORECAST ERROR
MATRIX
 FORECAST ERROR

• Error measurement.

• Measurement level.

• Feedback.
 Inventory
Definition
• A stock of items held to meet future
demand
• Inventory is a list for goods and
materials, or those goods and
materials themselves, held
available in stock by a business.


10/26/10 19
 Types of Inventory

Wor
k in
proc
ess Wor Finis
Raw
Vendors k in hed Customer
Mate
rials proc good
Wor ess s
k in
proc
ess

10/26/10 20
 Nature of Inventories
• Raw Materials – Basic inputs that are
converted into finished product
through the manufacturing process
• Work-in-progress – Semi-
manufactured products need some
more works before they become
finished goods for sale
• Finished Goods – Completely
manufactured products ready for sale
• Supplies – Office and plant cleaning
materials not directly enter production
but are necessary for production
10/26/10 21
 Objective of Inventory
Management
• To maintain a optimum size of inventory
for efficient and smooth production and
sales operations
• To maintain a minimum investment in
inventories to maximize the profitability
• Effort should be made to place an order
at the right time with right source to
acquire the right quantity at the right
price and right quality

10/26/10 22
 An effective inventory
management should
• Ensure a continuous supply of raw
materials to facilitate uninterrupted
production
• Maintain sufficient stocks of raw materials
in periods of short supply and anticipate
price changes
• Maintain sufficient finished goods
inventory for smooth sales operation,
and efficient customer service
• Minimize the carrying cost and time
• Control investment in inventories and
keep it at an optimum level
10/26/10 23
 An optimum inventory level
involves three types of costs
Ordering costs:- Carrying costs:-
• Quotation or tendering • Warehousing or storage
• Requisitioning • Handling
• Order placing • Clerical and staff
• Transportation • Insurance
• Receiving, inspecting and • Interest
storing • Deterioration,shrinkage,
• Quality control  evaporation and
• Clerical and staff obsolescence
Stock-out cost • Taxes
• Loss of sale • Cost of capital
• Failure to meet delivery •
commitments
10/26/10 24
Dangers of Over investment
• Unnecessary tie-up of firm’s fund and
loss of profit – involves opportunity
cost
• Excessive carrying cost
• Risk of liquidity- difficult to convert
into cash
• Physical deterioration of inventories
while in storage due to mishandling
and improper storage facilities
10/26/10 25
 Dangers of under-
investment
• Production hold-ups – loss of labor
hours
• Failure to meet delivery commitments
• Customers may shift to competitors
which will amount to a permanent
loss to the firm
• May affect the goodwill and image of
the firm
• 10/26/10 26
 Classification of inventory
 ABC Classification
 HML Classification
 XYZ Classification
 VED Classification
 FSN Classification
 SDF Classification
 GOLF Classification
 SOS Classification
 ABC Classification
 In most of the cases 10 to 20 % of the
inventory account for 70 to 80% of the
annual activity.
 A typical manufacturing operation shows
A
that the top 15% of the line items, in
terms of annual rupees usage, represent
B
80% of total annual rupees usage.
 Next 15% of items reflect 15% of annual
rupees
C
 Next 70% accounts only for 5% usage
 XYZ Classification
• On the basis of value of inventory stored
• Whereas ABC was on the basis of value of
consumption to value.
• X – High Value
• Y – Medium value
• Z – Least value

Aimed to identify items which are
extensively stocked.
 HML Classification
• O n th e b a sis o f u n it va lu e o f ite m
• There is 1000 unit of Q @ Rs. 10 and
10,000 units of W @ Rs. 5.

A im e d to co n tro lth e p u rch a se o f
ra w m a te ria ls.

H – High, M- Medium, L - Low
 VED Classification
 Mainly for spare parts because their
consumption pattern is different
from raw materials.
Therefore V items has to be stocked more
 Raw materials on market demand
and D Items has to be less stocked
 Spare parts on performance of plant
and machinery.
 V – Vital, E – Essential, D – Desirable
 FSN Classification
• According to the consumption
pattern
• To combat obsolete items
• F – Fast moving
• S – Slow moving
• N – Non Moving
 SDF & GOLF Classification
• Based on source of procurement
• S – Scarce, D- Difficult, E- Easy.
•
• GOLF
• G – Government, O – Ordinary, L –
Local, F – Foreign.
 SOS Classification
• Raw materials especially for
agriculture units
• S – Seasonal
• OS – Off seasonal
 Basic EOQ Model
Assumption


 Seasonal fluctuation in demand are

ruled out
 Zero lead time – Time lapsed between
purchase order and inventory usage
 Cost of placing an order and receiving
are same and independent of the
units ordered
 Annual cost of carrying the inventory is
constant
 EOQ – Three Approaches
•
• Trial and Error method
• Order-formula approach
• Graphical approach

10/26/10 36
 EOQ & Re-order point
•
• EOQ – gives answer to
question “How much to
Order”
• Re-order point – gives
answer to question “when
to order”
10/26/10 37
 Trial & Error Method
Assumptions:-


Annual requirement (C)=1200 units



Carrying cost (I) = Rs.1



Ordering cost (O) =Rs.37.5



O
 rder size Q 1200 600 400 300 240 200 150 120 100

Average inventory Q/2 600 300 200 150 120 100 75 60 50

No. of orders C/Q 1 2 3 4 5 6 8 10 12

Annual carrying cost 600 300 200 150 120 100 75 60 50

I* Q/2

Annual ordering cost 37.5 75 112.5 150 187.5 225 300 375 450
O*C/Q

Total annual cost 637.5 375 312.5 300 307.5 325 375 435 500

10/26/10 38
 Order- Formula approach
 1/2
 EOQ =(2CO/I)
C = Annual demand

O = Ordering cost per order

I = Carrying cost per unit

 1/2
EOQ =(2*1200*37.5/1) = 300 units

10/26/10 39
 Certainty case of the inventory cycle

Q
level order
Inventory
quantity

Average inventory =
Q/2

0 T1 T2 T3 T4
Time

1.Here the negative slope from Q to T1

represents the inventory being used up
2.T1, T2, T3, T4 represents the replenishment
points
3.The inventory varies between 0 and Q
Graphical method to find EOQ

ost 2
c CQ/
al =
Tot t
cos
Cost in RS.

ry ing
Car

Ordering co
st = DS/Q

0 EOQ
Order quantity
Extension of basic EOQ model
• This model can be extended to
include quantity discounts, were
simple calculation for quantity
discount is added.
•
Non zero lead time
• Non zero lead time
 Extension of basic EOQ model
• Non – zero lead time
 If the lead time is ‘n’ then procurement
must be done prior to ‘n’ days, i.e. T-n as
shown in the figure
Q

Reorder
point
0 T1 - n T1 T2 - n T2 T3 - n T3 T4 - n T4

Time
Placement of a
order
 Probabilistic inventory model
• In practical inventory management
assumption may not be strictly
correct.
1.Demand may fluctuate over time
due to seasonal, cyclical and
random influences.
2.Lead time may also fluctuate
because of transportation delay,
strikes or natural disaster. For such
reason most of the companies use
 Probabilistic inventory
model contd…
• But in some cases even the safety stock
becomes ineffective to combat stock
out. Like:-

Reorder point

Safety stock

T1 T2 T3 T4 T5 T6
Lead
Placement time
of order Stock
out
A Review
So we have dealt with


1. EOQ model
2.Its extension
3.Probabilistic model
4.
5.And now we will be dealing with special
inventory models
Special inventory model

• Non – Instantaneous replenishment

•
• Quantity Discount
•
• One – period decision
Special inventory model

Non – Instantaneous replenishment

Capacity 10 units

A B C D

Thus the inventory is replenished gradually than in lots

Particularly in situation were manufacturers use continues

production process
e.g. FACT makes Ammonium on a continual basis
Special inventory model
Discount Quantities
• If discount increases with the order
quantity, then the price of inventory
is no more constant
Hence a new approach is needed to find the
best lot size

Total cost =Annual holding cost+Annual ordering cost+Annual cost of materia

Special inventory model
One period decisions
The newsboy problem

• If a newspaper seller does not buy

enough papers to resell on the street
corner, sales opportunity is lost. If
the seller buys too many, the overage
cannot be sold because nobody wants
yesterdays newspaper.
Applicable to fashion goods, seasonal goods and
due to change in technology
 Emerging trends in inventory
management
 Entering into log term contract at a
fixed price to reduce uncertainties
 Just-in-time
 Kanbans – Japanese technique (Only
produce when demand comes)
 Internet based ordering system
 Supply chain management
 Vendor development
 Investment in plant and machinery
 Inventory control
responsibility
 Purchasing naturally has vest interest in
inventories, even to the extend that in some
companies the purchasing and stores
In effect the responsibility cannot be kept
functions are combined.
on one head since inventory management
 Production looks after the work in progress
is a integrated effort
 Logistics plays a major role in inventory control
 Inventories are economic importance to finance
department
 The fact that materials must be moved from
one place to another is of importance to
materials department
THANK YOU