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Event
management
Conclusions
Inventory management is not a stand-alone business process that occurs
after other processes are complete.
•Service •Cost
objectives objectives
– The more stock, the more working capital is needed and the more stock depreciation you get.
– On the other hand if you do not have enough stock, you get inventory stock-outs, missing
potential sales, possibility interrupting the whole production process.
What drives inventory in the supply chain?
(Factorii care influenteaza nivelul stocului)
Second priority:
1. Item Fill Rate (98.5%) : Total number of items shipped or supplied/ the total number of items ordered. In tabel din
totalul de 1010 produse comandate nu s-au livrat 15, adica: Item Fill Rate=(1010-15)/1010*100=98.5%.
Cat la % din articolele comandate au fost livrate?
2. The line item fill rate: the percentage of line items on the order shipped in their entirety. Exemplu: o comanda are
10 linii de produse. Din acestea 5 linii au fost livrate complet.
Line Item Fill Rate = 5/10 = 50% ; 2 este mai restrictiv decat 1.
Cat la % din liniile unei comenzi au fost complet livrate?
3. Order fill rate (80%): the percentage of orders shipped completely. In tabel din 5 comenzi, o comanda a fost livrata
incomplet. Order fill rate=(5-1)/5=4/5*100=80%.
Cat la % din numarul comenzilor au fost complet livrate?
Order fill rate este cel mai restrictiv indicator de masurarea a nivelului de servire.
Conclusion: It is important to agree a common goal between suppliers and customers and to establish what the
customers need in terms of availability.
The appropriate measure can then be used for monitoring.
COST OBJECTIVES
- Inventory Costs -
1. Ordering Costs (costurile de lansare a comenzilor de aprovizionare): The
direct labor costs in Purchasing and Warehouse operations associated with
PO (purchase order) - costs of placing and receiving an order
- cost to place purchase orders : Enter PO/Requisition and any Approval Steps, such as
forms (documents), papers, labor(clerical costs)
- cost of tracking orders
- cost of receiving and inspecting the purchased items inclusive handling (unloading)
and putaway costs.
- Cost of Invoice Process and Vendor Payment
2. Setup Costs: when a firm produces the goods internally, ordering costs are
replaced by setup costs. The costs of preparing equipment and facilities so they can be used
to produce a particular product or component
Examples: prepare the order paperwork, processing and tracking the order
operations, the cost of setting up the machine, and first off
inspection, setup labour, lost income (from idled facilities), and
test runs.
Interest expense of
Cost of storage Handling costs (to put
money tied up in
facilities and products in inventory
inventory (“inventory
maintaining them and take them out again)
carrying cost”)
Costs of damage
Costs of risk such Costs of inventory
to products while
as theft and fire becoming obsolete
In inventory
Example of Carrying Cost
(costurile anuale de pastrare a unui articol in stoc)
Percentage of
Annual Carrying Cost Product Value
(%)
Capital Cost (costurile de oportunitate ale capitalului investit
in stocuri-randamentul in investitii alternative de risc
12%
apropiat sau dobanda de imprumut a capitalului investit in
stocuri)
Storage space (amortizare (spatiu propriu), inchiriere,
intretinere, utilitati, extra cost manipulare stocuri speciale: 2%
perisabile, toxice, inflamabile)
Inventory service (cheltuieli cu forta de munca pentru
3%
manipularea fizica a produselor, asigurare, impozite, paza)
Inventory Risk Cost (depreciere, deteriorare, uzura morala,
8%
furturi, incendii, pierderi, relocare)
25 %
Total din valoarea medie
anuala a stocurilor
17
The rule of thumb for inventory carrying cost is between 15% and 30%.
Inventory and Cost Information for Computer Hard Disks
Costul anual de lansare (Annual
Order Cost): 52*$200=$10.400
Vanzarea medie saptamanala= 100 buc Carrying cost (costul de stocare) : 25% din
Costul de lansare a unei comenzi=200$ valarea unui produs stocat pe 1 an de zile
Pret de achizitie 100$/buc
*Stocul mediu anual (Average Inventory)= Q/2, Costul anual de stocare (Total Annual
unde Q= 100 buc si reprezinta comanda lansata Carrying Cost$): 0.25*$100*50=$1.250
pentru a onora cererea medie saptamanala de
100 buc). 18
I ve tory’s Co fli ti g Cost Patter s
Interpretare: comenzi mai rare prin cresterea cantitatilor pe o comanda
conduc la: reducerea costurilor pe comanda(ordering cost), a costurilor
datorate rupturilor de stoc (stockout cost) deoarece stocul este mai mare
decat cererea dar si la cresterea costurilor de gestiune (carrying cost).
Ordering cost
Stockout cost
x–x 2
(x – x)
N=∑Fi=50 2
S (x - x)
s= n
Calculul medianei (punctul central al seriei):
a) Se sorteaza cresc/desc sirul de numere
b) Pentru o serie cu numere pare, D=media valorile care se gasesc pe locurile din mijlocul
seriei
c) Pentru o serie cu numere impare, D se afla in serie pe pozitia (n+1/2). In cazul nostru
avem n=9 si deci media este 10, adica numarul de pe pozitia 10/2=5.
Purchasing cycle variation analysis
using a normal distribution
σ =de iația standard
If σ = 2 e should e pe t:
0
10 20 30 40
Interval de timp aprovizionare (Zile)
Pentru comanda la 10 zile, Q=10*10=100buc, Stocul mediu =Q /2= 100/2=50 buc
Danger: Value use may not reflect importance of any given SKU! 33
Example of SKU list for 10 items
Percentage of
Annual Sales Annual Sales Total EURO
Item Units Unit Price Euro Sales
1 5,000 € 1.50 € 7,500 2.9%
2 1,500 8.00 12,000 4.7%
3 10,000 10.50 105,000 41.2%
4 6,000 2.00 12,000 4.7%
5 7,500 0.50 3,750 1.5%
6 6,000 13.60 81,600 32.0%
7 5,000 0.75 3,750 1.5%
8 4,500 1.25 5,625 2.2%
9 7,000 2.50 17,500 6.9%
10 3,000 2.00 6,000 2.4%
Total € 254,725 100.0%
34
ABC Chart for SKU List
Percentage
Annual Sales A B Annual of TotalC Cumulative
in Units Unit Price Sales EURO EURO Sales Percentage
10,000 10.50 105,000 41.2% 41.2%
6,000 13.60 81,600 32.0% 73.3%
7,000 2.50 17,500 6.9% 80.1%
1,500 8.00 12,000 4.7% 84.8%
6,000 2.00 12,000 4.7% 89.5%
5,000 € 1.50 € 7,500 2.9% 92.5%
3,000 2.00 6,000 2.4% 94.8%
4,500 1.25 5,625 2.2% 97.1%
7,500 0.50 3,750 1.5% 98.5%
5,000 0.75 3,750 1.5% 100.0%
€ 254,725 100.0%
35
ABC Chart for SKU List
45.0% 120.0%
40.0%
100.0%
Cumulative % Sales
35.0% A B C
Percent Sales
30.0% 80.0%
25.0%
60.0%
20.0%
15.0% 40.0%
10.0%
20.0%
5.0%
0.0% 0.0%
3 6 9 2 4 1 10 8 5 7
Item No.
36
Sample illustrating segment strategy
definitions
(service objectives, forecasting method, management technique, and review cycle)
CPFR- a supplier – buyer partnership for planning and forecasting market demand
DRP – Distribution Resources Planning a method used for inventory allocation in a
supply chain
Segmentation in Supply Chain
-Inventory segmentation based on
customer service -
Cauzele care produc exces de stoc Cauzele care produc ruptura de stoc
Minimum order quantities drive to higher
inventory levels (excess stock)
• Minimum Order Quantities (MOQ)
on low volume items may require
you to order more than an
opti al ua tit
• Items with high MOQ can lead to
excess on-ha d i e to …
• … ut the o de f e ue is g eatl
reduced resulting in fewer
e posu es to the i i u sto k
level and fewer potential stock-outs
• Safety stocks based on the lower
volume orders should not be
applied to high MOQ items
• High MOQ items can be planned
with lower relative safety stocks
without impacting fill rates over the
long term
Methods for inventory reduction
Use Push-Pull Strategy
To reduce inventory level
Make to Order by Postponement strategy (amanarea cererii
pana la cunoasterea specificatiilor finale ale produsului)
• A typical push system: PC manufacturers who build to stock and make all
production and distribution decisions based on forecast.
• A push-pull strategy: the manufacturer builds to order. This implies that
component inventory is managed based on forecast (push-based), but final
assembly is in response to a specific customer request (pull-based). This
push-pull boundary is at the beginning of assembly.
• The interface between the push-based stages and the pull-based stages is
known as the push-pull boundary.
Methods for inventory reduction
- Reduce safety stock levels -
Pool safety stock for multiple locations
Inventory positioning across the supply chain – where you keep the inventory in
the supply chain can make a big difference.
Methods for inventory reduction
-Inventory Record Accuracy-
• Inaccurate inventory records can cause:
– Lost sales
– Disrupted operations
– Poor customer service
– Lower productivity
– Planning errors and expediting
– The effort for the inventory is not concentrated on a certain day or days
but is distributed over the entire year. This can result in a better leveling of
the workload in the warehouse.
– Inventory can be conducted during slow times in the warehouse, for
example, during summer vacation.
– When an inventory is carried out on a continuous basis, up-to-date
information about the correspondence between the warehouse stock and the
book inventory is always available.
WMS- Cycle Counting
Cycle counting in the Warehouse Management
System (WMS) component makes it possible for
you to separate materials into classes (such as A,
B, C...) and take inventory for each class
separately several times throughout the year.
Cycle Counting Example
60
Cycle Counting Example
Number Count Number of Per Counts per
Class of Items Frequency Counts Cent Day
8
A 500 4 2,000 10% (2,000/250)
Note: Daily Count = 20,000 / 250 = 80, where 250= no of working days
61
Methods for inventory reduction
Supply Contracts
• Supply Contracts
Buyers and suppliers typically agree on supply contracts
• Contracts address issues that arise between a buyer and a supplier
• Buyers and suppliers may agree on
– Pricing and volume discounts
– Minimum and maximum purchase quantities
– Delivery lead time
– Product or material quality
– Product return policies - the best time to negotiate the terms for the
return of product with a vendor is before you agree to take on a new
product line or place a very large purchase order.
• Supply contracts are very powerful tools that can be used for far more
than to ensure adequate supply of, and demand for, goods
• Supply Contracts – Risk Sharing
A variety of supply contracts will allow for risk sharing, and
increase profits across the SC
• Buy-back contracts
• Revenue-sharing contracts
• Quantity-flexibility contracts
• Sales rebate contracts (manufacturer offers a rebate to all who
purchase its product, such as tickets or coupon).
• Global Optimization
Methods for inventory reduction
Strategic Alliances
• Collaborative Inventory Replenishment
– Quick Response (QR)
– Collaborative planning, forecasting, and replenishment
(CPFR)
– Vendor Managed Inventory (VMI)
Remarks: Companies moving more and more towards centralized inventory planning
and away from decentralization of planning activities
19 May 2018 69
RSP Requirements
• Presence of advanced information systems
• Top management commitment
– Especially because information will be shared
across companies
• A level of trust among partners
– Supplie a ages etaile ’s i e to
– Retailer provides sales information to supplier
– Reduced inventory leads to space savings
• Should not be given to competitors
RSP Inventory Ownership
• Who makes the replenishment decisions?
In momentul in care are loc transferul titlului legal, riscurile si beneficiile legate
de stocuri trec de la vanzator la cumparator.
Goods in Tranzit
-Produse in Tranzit – exemplu pentru livrare FOB
Una dintre erorile care se fac in privinta stocurilor este de a
considera ca titlul de proprietate asupra stocurilor este identic
cu posesia fizica a stocurilor.
Methods for inventory reduction
Change the safety stock service level
• Change the safety stock service level from 98%
(or where ever you have it) to 95%. Example:
Example:
What is the service level for an item with annual demand
of 25,000 units and an order quantity of 5,000 units?
Management will tolerate only 1 order stockout per year.
What if the order
N= 25,000 / 5,000 = 5 Quantity was
1,000?
Stock turns in some businesses such as spare parts will be very low, say 1-3 times per
annum. Whereas stock turns in an FMCG business can be as high as 20 to 30 times per
year.
Viteza de rotatie a stocurilor in
zile
Inventory stock status evaluation
Cash-to-cash cycle time - impacting Working capital
A financial ratio showing for how long a company has to finance its own
stock/inventory. It is calculated : stock days + debtor days - creditor days.
Example: A company which keeps its stock for on average of 20 days, which gets paid
by its debtors on average within 30 days and which pays its creditors on average
within 45 days, has a cash-to-cash cycle of 5 days. Companies that receive cash from
their customers at the time of sale and that have their stock under good control, will
have a short cash-to-cash cycle
Fill Rate part of Perfect Order
(Gradul de onorare a comenzilor)
• Item Fill Rate
• The item fill rate is the ratio of the total number of items shipped divided by the total
number of items ordered. The line item fill rate measures the percentage of line
items on the order shipped in their entirety. Finally, the order fill rate is a measure of
the percentage of orders shipped completely.
•
• Benchmarking Values:
• To illustrate these fill rate measures, consider the order in the exhibit. First, there are
a total of 5036 items on this order. Since 4817 of the items were shipped, the item
fill rate is
• Item Fill Rate = 4817/5036 = 95.6 %
• A more strict measure is the line item fill rate. There are 10 lines of items ordered,
and of these 10 line items, only 5 of them were filled in their entirety, thus the line
item fill rate is Line Item Fill Rate = 5/10 = 50% (Nr. Linii livrate integral/Nr. Total linii
livrate)
• Finally, the order fill rate is the percentage of orders filled completely. Clearly, this
order counts in the unfilled category. This measure is probably the strictest of the
three measures of customer service fill rates discussed above
Inventory related metrics
Inventory related metrics (2)