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Inventory management methods

[Bowersox pages 287..]
Reactive methods or systems
#eactive methods or systems respond to
customers pull
'P' & 'Q' Models
These systems are called pull systems
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Limitations
Oversimplified demand patterns
Unlimited production & supply facilities
Lack of information flow across multiple
facilities
nventory managers use manual overrides
But this complicates the matters
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I 250
ROP 200
OQ 400
I 45
ROP 50
OQ 200
D 5
I 80
ROP 75
OQ 200
D 14
DISTRIBUTION
CENTER
WHOLESALER A
WHOLESALER B
REACTIVE INVENTORY ENVIRONMENT
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!anning methods [push or proactive
methods]
Fair Share Aocation
llocate an amount of inventory to a
warehouse based on the past consumption
pattern, current stock & minimum inventory
level at the plant ware house.
Plant warehouse
nventory 600 units
Distribution Center 1
nventory 50 units
Daily use 10 units
Distribution Center
2 nventory 100
units
Daily use 50 units
Distribution Center
3 nventory 75 units
Daily use 15 units
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Then a common day's supply, DS, for
distribution center inventories is,
+ _
DS = --------------
_D
500 + _50+100+75
DS = --------------------------
_10+50+15
= 9.67days. Now amount of inventory
allocated to distribution center 1 is [9.67
50/10]X10 = 4.67X10 = 46.7 units, say 47
units. Similarly we can find allocations for
distribution centers 2 & 3
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Fair share allocation method doesn't take
into account performance cycle times, EOQ
& safety stock considerations.
ther approaches to inventory
management
Just In Time [Bowersox pages
490.....]
The time based approach - Toyota Motors
Company & concept of kanban in 1950
#eduction in WP quantities tying the
inventory closely to the demand from
subsequent process or internal customer
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Kanban is conceptually a two bin system
leading to concept of stockless production
JT embraced a variety of manufacturing
concepts like SMED, group technology,
TPM and quality circles.
merican disappointment with the attempts
to incorporate Japanese methods lead to
other concepts like D#P
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"R, CR, AR, response based techniques
"uick response
On receiving order supplier with the help of
ED [Electronic data interchange] finalizes
the delivery details and communicates them
to the customer in advance
This facilitates scheduling labor and other
facilities
This reduces inventories as uncertainties
are reduced and total cost resulting into
better performance.
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Continuous Repenishment strategy
lso known as vendor managed inventory
Need for placing an order is eliminated
supply chain relationship is established
that ensures continuous replenishment of
stock at customers place by the vendor.
There are two basic needs in C#
Effective communication system to provide
key information between customer and
supplier
sufficiently large volumes to make
transportation viable
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Finally customer should honor the shipment
from the supplier for payment
Automatic or profie Repenishment or
AR
Supplier anticipates the customers'
requirement in advance to make
replenishment
The responsibility for inventory
management is placed squarely on the
supplier
nformation flow between customer &
supplier makes inventory visibility possible
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Supplier gets the benefit of inventory visibility
and more effective management to reduce
total costs