《供应链系统设计与管理》课程教学课件（讲稿）Lecture 2（Chapter 2）Introduction to Inventory Management

Lecture 2Introduction to InventoryManagementWang BhanggiongWHUTApril.2017

Lecture 2 Introduction to Inventory Management 1 Wang Zhangqiong WHUT April, 2017

ObjectivesUnderstandinginventoryina supplychainWhyinventory is important?How to manage it?SingleStageInventoryControl- Economic Lot Size Model-DemandUncertainty,safestockMultipleOrderOpportunities:RiskPooling(Centralizedsystem)

Objectives • Understanding inventory in a supply chain Why inventory is important? How to manage it? • Single Stage Inventory Control - Economic Lot Size Model - Demand Uncertainty, safe stock • Multiple Order Opportunities: • Risk Pooling (Centralized system) 2

(P19)CASE: Steel WorksRequirement:to read the case materials in advanceand think about the issues for the company.Whyinventoryisimportant?Howtomanageit?Whatarethemainproblems?-- too much inventory--poorservice

 CASE: Steel Works （P19） Requirement: to read the case materials in advance, and think about the issues for the company. • Why inventory is important? How to manage it? • What are the main problems? - too much inventory - poor service 3

Custom ProductsRapid growth, 1/3 of total sales ($133 MM)OnecustomerperproductVeryhigh marginsHigh service level 3 plants, co-located with R&D centerEachproductproducedatasingleplant

Custom Products • Rapid growth, 1/3 of total sales ($133 MM) • One customer per product • Very high margins • High service level • 3 plants, co-located with R&D center • Each product produced at a single plant 4

Specialty ProductsRapid growth, 2/3 of total sales ($267 MM)·6 product families3 plants, eachproducing 2 product families130 customers, 120 productsFew big customers: 5Highly volatile demand:Highservicelevel5

Specialty Products • Rapid growth, 2/3 of total sales ($267 MM) • 6 product families • 3 plants, each producing 2 product families • 130 customers, 120 products • Few big customers: 5 • Highly volatile demand: • High service level 5

Howtosolvetheseproblems?-lowerexpenses-improveperformanceConsultant RecommendationDroplowvolumeproductsImproveforecastsConsolidate warehouses6

Consultant Recommendation • Drop low volume products • Improve forecasts • Consolidate warehouses 6 •How to solve these problems? -lower expenses -improve performance

Introduction to inventoryWhat Is Inventory of the supply chain?Where ?·Raw material inventory:Work-in-process(WiP) inventory·Finished product inventoryDuality:requiredcost money

Introduction to inventory What Is Inventory of the supply chain? Where ? • Raw material inventory • Work-in-process(WIP) inventory • Finished product inventory Duality: cost money - required 7

Why Is Inventory management Important?GM's production and distribution network are complex-20,000supplierplants-133partsplantsand31assemblyplants- 11,000 dealerstransportation costs: $4.1 billion (60% for material shipments)inventory valued at $7.4 billion (70%WiP; Rest FinishedVehicles)Decision tool to reduce:- combined corporate cost of inventory andtransportation.26% annual cost reduction by adjusting- Shipment sizes (inventory policy)-Routes (transportation strategy)

 Why Is Inventory management Important? • GM’s production and distribution network are complex – 20,000 supplier plants – 133 parts plants and 31 assembly plants – 11,000 dealers • transportation costs: $4.1 billion (60% for material shipments) • inventory valued at $7.4 billion (70%WIP; Rest Finished Vehicles) • Decision tool to reduce: – combined corporate cost of inventory and transportation. • 26% annual cost reduction by adjusting: – Shipment sizes (inventory policy) – Routes (transportation strategy) 8

WhyIsInventoryRequired? Uncertainty in customer demand- Shorter product lifecycles- More competing products. Uncertainty in supplies-Quality/Quantity/Costs/DeliveryTimes·DeliveryleadtimesIncentives for larger shipments (economy ofscale)

 Why Is Inventory Required? • Uncertainty in customer demand – Shorter product lifecycles – More competing products • Uncertainty in supplies – Quality/Quantity/Costs/Delivery Times • Delivery lead times • Incentives for larger shipments (economy of scale) 9

Holding the right amount at theright time is difficult!Uncertainty of demand and supplyPrediction is always wrongRelationship between forecast demand andthe optimal order quantity10

 Holding the right amount at the right time is difficult! 10 • Uncertainty of demand and supply • Prediction is always wrong • Relationship between forecast demand and the optimal order quantity