Top Banner

of 54

099S131_AA06L01

Jun 02, 2018

Download

Documents

Rohan Viswanath
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
  • 8/10/2019 099S131_AA06L01

    1/54

    Inventory Management:

    Safety Inventory ( I )

    CC

    3.0

    Inventory Management: Safety Inventory ( I )

    1

    http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/
  • 8/10/2019 099S131_AA06L01

    2/54

    Safety Inventory

    Demand uncertainty

    Supply uncertainty

    Safety Inventory is inventory carried for the purpose of satisfying

    demand that exceeds the amount forecasted for a given period. Purposes of holding safety inventory

    Average

    Inventory

    Inventory

    Time

    Safety Inventory

    Cycle Inventory

    2

  • 8/10/2019 099S131_AA06L01

    3/54

    Planning Safety Inventory

    Appropriate level of safety inventory is determined by

    Actions to improve product availability while reducing safety inventory

    Uncertainty of both demand and supply

    Uncertainty increases, then safety inventory increases.

    Desired level of product availability Desired level of product availability

    increases, then safety inventory increases.

    3

  • 8/10/2019 099S131_AA06L01

    4/54

    Measuring Demand Uncertainty

    k

    i=1

    DiP=

    CV= s/m

    P=KDDks=W

    Coefficient of variation

    The total demand during kperiod is normally distributed with a mean of Pand a standard deviation of W :

    If demand in each period is independent and normally distributed with a

    mean of D and a standard deviation of sD, then

    W=

    si2

    +2 Cov(i,j)i=1 i>j

    k=

    si2

    +2rsisji=1 i>j

    k

    Uncertainty within lead time

    Assume that demand for each period i, i=1,.,k is normally distributedwith a mean Di and standard deviation si .

    si2

    i=1

    k

    +2rsisji>j

    Dks

    4

  • 8/10/2019 099S131_AA06L01

    5/54

    Measuring Product Availability

    Order fill rate

    Product fill rate ( fr )

    Cycle service level (CSL)

    The fraction of replenishment cycles that end with all the customer demand beingmet

    The CSLis equal to the probability of not having a stockout in a replenishmentcycle

    A CSLof 60 percent will typically result in a fill rate higher than 60%

    The fraction of product demand that is satisfied from product in inventory

    It is equivalent to the probability that product demand is supplied from available

    inventory

    The fraction of orders that are filled from available inventory

    Order fill rates tend to be lower than product fill rates because all products must bein stock for an order to be filled

    CoolCLIPS

    5

    http://get.nccu.edu.tw:8080/getcdb/handle/getcdb/127023
  • 8/10/2019 099S131_AA06L01

    6/54

    Product fill rate ( fr)

    Order fill rate

    Cycle service level (CSL)

    Measuring Product Availability -- Page 5

    On-handinventory

    Orderreceived

    Unfilled

    demand

    Filled

    demand0

    Don't run out of inventory in 6 out of 10

    replenishment cycles

    An order for a total of 100 palms and has 90 in inventory

    Customer may order a palm along with a calculator. The order is filled only if both

    products are available.

    CSL= 60%

    fill rate > 60%

    fill rate of 90%

    In the 40% of the cycles where a stockout

    does occur, most of the customer demand

    is satisfied from inventory

    Cycle

    MicrosoftMicrosoft6

    http://get.nccu.edu.tw:8080/getcdb/handle/getcdb/127023http://get.nccu.edu.tw:8080/getcdb/handle/getcdb/127023
  • 8/10/2019 099S131_AA06L01

    7/54

  • 8/10/2019 099S131_AA06L01

    8/54

    A replenishment policy consists of decisions regarding

    When to reorder

    How much to reorder.

    Continuous review

    Inventory is continuously tracked and an order for a lot size Qis placed

    when the inventory declines to the reorder point (ROP).

    Replenishment Policies

    Periodic review

    Inventory status is checked at regular periodic intervals and an order is

    placed to raise the inventory level to a specified threshold.

    Q

    P

    8

  • 8/10/2019 099S131_AA06L01

    9/54

    Continuous Review System

    Other names are:Reorder point system, fixed order quantity system

    Decision rule

    The remaining quantity of an item is reviewed each time a withdrawal is

    made from inventory, to determine whether it is time to reorder.

    Inventory position

    IP= inventory positionOH= on-hand inventory

    SR= scheduled receipts (open orders)

    BO= units backordered or allocated

    IP = OH+SR-BO

    Whenever a withdrawal brings IPdown to the reorder point (ROP), placean order for Q(fixed) units.

    9

  • 8/10/2019 099S131_AA06L01

    10/54

    Time

    On-hand

    inventoryOrderreceived

    ROP

    OH

    IP

    TBO2 TBO3L2 L3

    Orderreceived

    OH

    Q

    IP

    Order

    placed

    ROP= average demand during lead time + safety stock

    Continuous Review

    System

    ROP

    Order

    placed

    L1

    TBO1

    10

  • 8/10/2019 099S131_AA06L01

    11/54

    Time

    On-hand

    inventory

    TBO2 TBO3L2 L3

    Orderreceived

    OH

    Q

    IP

    Order

    placed

    ROP= average demand during lead time + safety stock

    Continuous Review

    System

    Order

    placed

    L1

    TBO1

    FIX

    Orderreceived

    ROP

    OH

    IP

    11

  • 8/10/2019 099S131_AA06L01

    12/54

    Time

    On-hand

    inventory

    TBO2 TBO3L2 L3

    ROP= average demand during lead time + safety stock

    Continuous Review

    System

    L1

    TBO1

    Orderreceived

    OH

    Q

    IP

    Order

    placed

    Order

    placed

    Orderreceived

    ROP

    IP

    OH

    12

  • 8/10/2019 099S131_AA06L01

    13/54

    Example

    Given the following data

    Average demand per week, D= 2,500 Standard deviation of weekly demand, sD=500

    Average lead time for replacement, L= 2 weeks

    Reorder point, ROP= 6,000

    Average lot size, Q= 10,000

    =ROP-DL=6,000-5,000=1,000 Safety inventory,ss

    Cycle inventory

    Average inventory

    Average flow time

    =Q/2=10,000/2=5,000

    =5,000+1,000=6,000

    = Average inventory / Throughput=6,000/2,500

    =2.4weeks

    13

  • 8/10/2019 099S131_AA06L01

    14/54

    Evaluating Cycle Service Level and Safety Inventory

    DLL LDLD ss == and

    CSL=Function ( ROP,DL,sL)

    CSL= Prob (Demand during lead time of L weeks ROP)

    z=Fs-1(CSL)

    ss=z LsD

    Demand during lead time is normally distributed with a mean of DLand a

    standard deviation of sL

    ROP=DL+Z LsD

    CSL

    14

  • 8/10/2019 099S131_AA06L01

    15/54

    Finding Safety Stock with a Normal Probability

    Distribution for an 85 Percent SL

    Safety stock = zsL

    Averagedemand

    duringlead time

    Probability of stockout

    (1.0 - 0.85= 0.15)

    ROP

    CSL= 85%?

    zsL

    1

    2

    3

    4:->ROP

    15

  • 8/10/2019 099S131_AA06L01

    16/54

    Evaluating Cycle Service Level and Safety Inventory

    DLL LDLD ss == and

    CSL=Function ( ROP,DL,sL)

    CSL= Prob (Demand during lead time of L weeks ROP)

    z=Fs-1(CSL)

    ss=z LsD

    Demand during lead time is normally distributed with a mean of DLand a

    standard deviation of sL

    ROP=DL+Z LsD

    16

  • 8/10/2019 099S131_AA06L01

    17/54

    Example

    Given the following data

    Q= 10,000

    ROP= 6,000

    L= 2 weeks

    D=2,500/week, D=500

    2x2,500=5,000 DL=DL=

    =F(ROP, DL, sL)=F(6000,5000,707)

    =NORMDIST(6000,5000,707,1)=0.92

    = 2 x500=707

    CSL=Proability of not stocking out in a cycle

    sL= L sD

    17

  • 8/10/2019 099S131_AA06L01

    18/54

    Normal Distribution in Excel

    Commands Page 12)

    )(NORMINV)(

    )0,1,0,(NORMDIST)(

    )1,1,0,(NORMDISTor)(NORMDIST)(

    NormalStandard

    1 ppF

    xxf

    xxxF

    s

    s

    s

    =

    =

    =

    ),,(NORMINV),,(

    )0,,,(NORMDIST),,(

    )1,,,(NORMDIST),,(

    1smsm

    smsm

    smsm

    ppF

    xxf

    xxF

    =

    =

    =

    18

  • 8/10/2019 099S131_AA06L01

    19/54

    Normal Distribution in Excel

    Demo)

    19

    http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/
  • 8/10/2019 099S131_AA06L01

    20/54

    Example

    Given the following data

    Q= 10,000

    ROP= 6,000

    L= 2 weeks

    D=2,500/week, sD=500

    CSL=0.9

    2x2,500=5,000 DL=DL=

    =F(ROP, DL, sL )=F(6000,5000,707)

    =NORMDIST(6000,5000,707,1)=0.92

    = 2 x500=707

    ss=Fs-1(CSL)

    sL= L sD

    20

  • 8/10/2019 099S131_AA06L01

    21/54

    Example

    Given the following data

    D=2,500/week

    sD=500 L= 2 weeks

    Q= 10,000,

    CSL=0.9

    2x2,500=5,000 DL=DL=

    =1.282x707=906

    = 2 x500=707

    ss=Fs-1(CSL)xsL=NORMDIST(CSL)xsL

    sL= L sD

    ROP= 2x2,500+906=5,906

    21

  • 8/10/2019 099S131_AA06L01

    22/54

    Example

    Given the following data

    D=2,500/week

    sD=500 L= 2 weeks

    Q= 10,000,

    CSL=0.9

    2x2,500=5,000 DL=DL=

    =1.282x707=906

    = 2 x500=707

    ss=Fs-1(CSL)xsL=NORMDIST(CSL)xsL

    sL= L sD

    ROP= 2x2,500+906=5,906

    22

    http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/
  • 8/10/2019 099S131_AA06L01

    23/54

    Periodic Review System

    Other names are:

    fixed interval reorder system or periodic reorder system.

    Decision Rule

    Review the items inventory position IPeveryTtime periods. Place anorder equal to (OUL-IP) where OULis the target inventory, that is, the

    desired IPjust after placing a new order.

    The periodic review system has two parameters: TandOUL .

    Here Qvaries, and time between orders (TBO) is fixed.

    23

  • 8/10/2019 099S131_AA06L01

    24/54

    On-hand

    inventory

    Periodic Review System

    OUL

    Time

    Orderplaced

    IP

    L

    T

    L L

    Order

    received

    OH

    Q2

    IP

    Orderplaced

    Q1Q3

    Orderplaced

    TProtection interval

    OHIP1

    IP3

    IP2

    OUL

    24

  • 8/10/2019 099S131_AA06L01

    25/54

    The new order must be large enough to make the inventory position,IP,

    last not only beyond the next review, which is Tperiods from now, butalso for one lead time (L) after the next review. IPmust be enough to

    cover demand over a protection interval of T + L.

    OUL=

    Finding

    OUL

    +Safety stock forprotection interval

    D

    1

    s LT)CSL(FD)LT( s=

    Average demand

    during protectioninterval

    25

  • 8/10/2019 099S131_AA06L01

    26/54

    Administratively convenient (such as each Friday)

    weeks)52(D

    EOQT=

    weeks4orweeks4.3)52(1200

    100==T

    Selecting the Reorder Interval

    T

    )

    Example: Suppose D= 1200 /year and EOQ= 100

    Approximation of EOQ

    26

  • 8/10/2019 099S131_AA06L01

    27/54

    Example

    Given the following data

    D=2,500/week

    sD=500

    L= 2 weeks

    T= 4weeks

    CSL=0.9

    (4+2)x2,500=15,000 DT+L=(T+L)D=

    =1,570 ss=Fs-1(CSL)xsT+L=Fs-1(0.9)xsT+L

    OUL=DT+L+ss = 1,5000+1,570=16,570

    DT+L= T+L sD= (4+2) x500=1,225

    27

  • 8/10/2019 099S131_AA06L01

    28/54

    Periodic System versus Continuous System

    FeatureContinuous review

    systemPeriodic review system

    Order quantity Q-constant Q-variable

    When to placeorder

    When quantity on handdrops to the reorder level

    When the review periodarrives

    Recordkeeping Each time a withdrawal oraddition is made

    Counted only at review period

    Size of inventory Less than periodic system Larger than continuous system

    Factors drivingsafety inventory

    Demand uncertaintyReplenishment lead time

    Demand uncertaintyReplenishment lead timeReorder interval

    Type of items Higher-priced, critical, orimportant items

    28

  • 8/10/2019 099S131_AA06L01

    29/54

    Evaluating Fill Rate Given a Replenishment Policy

    f (x) is density function of demand

    distribution during the lead time

    fr=1- =

    In the case of normal distribution, we have

    ESCX=ROP

    =(X-ROP) f(x)dx

    For a continuous review policy

    Expected shortage per replenishment cycle (ESC) is the average units

    of demand that are not satisfied from inventory in stock per cycle

    Q

    Q-ESC

    Q

    ESC

    29

  • 8/10/2019 099S131_AA06L01

    30/54

    Evaluating Fill Rate Given a Replenishment Policy

    f (x) is the density function of demand

    distribution during the lead time

    fr=1

    - =

    In the case of normal distribution, we have

    ESCX=ROP

    =(X-ROP) f(x)dx

    For a continuous review policy

    Expected shortage per replenishment cycle (ESC) is the average units

    of demand that are not satisfied from inventory in stock per cycle

    ESC

    Q

    Q-ESC

    Q

    30

  • 8/10/2019 099S131_AA06L01

    31/54

    Evaluating Fill Rate Given a Replenishment Policy

    f (x) is density function of demand

    distribution during the lead time

    fr=1

    - =

    In the case of normal distribution, we have

    ESCX=ROP

    =(X-ROP) f(x)dx

    For a continuous review policy

    Expected shortage per replenishment cycle (ESC) is the average units

    of demand that are not satisfied from inventory in stock per cycle

    ESC

    Q

    Q-ESC

    Q

    31

  • 8/10/2019 099S131_AA06L01

    32/54

    Evaluating Fill Rate Given a Replenishment Policy

    010

    1101

    1

    ,,,/

    ,,,/

    LL

    L

    L

    sL

    L

    s

    ssNORMDIST

    ssNORMDISTss

    ssf

    ssFssESC

    ss

    ss

    s

    s

    =

    =

    f (x) is density function of demand

    distribution during the lead time

    fr=1- =

    In the case of normal distribution, we have

    ESCX=ROP

    =(X-ROP) f(x)dx

    For a continuous review policy

    Expected shortage per replenishment cycle (ESC) is the average units

    of demand that are not satisfied from inventory in stock per cycle

    ESC

    Q

    Q-ESC

    Q

    32

  • 8/10/2019 099S131_AA06L01

    33/54

    Proof

    = =

    =ROPx

    dxxfROPxESC )()(

    =

    ssDx

    Dx

    L

    L

    L

    dxLLessDx 2

    1)(

    22 2)( s

    s

    WIKIPEDIA

    WIKIPEDIA33

    http://en.wikipedia.org/wiki/Public_domainhttp://en.wikipedia.org/wiki/Public_domain
  • 8/10/2019 099S131_AA06L01

    34/54

    sLdz

    Proof

    = =

    =ROPx

    dxxfROPxESC )()(

    Substituting Z=(X-DL)/sL and dx=sLdz , we have

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    ssDx

    Dx

    L

    L

    L

    dxLLessDx 2

    1)(

    22 2)( s

    s

    34

  • 8/10/2019 099S131_AA06L01

    35/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    = =

    =ROPx

    dxxfROPxESC )()(

    Substituting Z=(X-DL)/sL and dx=sLdz , we have

    =

    ssDx

    Dx

    L

    L

    L

    dxLLessDx 2

    1)(

    22 2)( s

    s

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    35

  • 8/10/2019 099S131_AA06L01

    36/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    36

  • 8/10/2019 099S131_AA06L01

    37/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    = )]/(1[ Ls ssFss s

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    37

  • 8/10/2019 099S131_AA06L01

    38/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    = )]/(1[ Ls ssFss s

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    s=

    s2L

    2 2/ssw

    w

    L dw

    2

    1e

    ]2

    1[)]/(1[

    2

    2

    1

    = Lss

    LLs essFss s

    ss

    )2/:(note 2zw=

    dw=2zdz/2

    dw=zdz

    38

  • 8/10/2019 099S131_AA06L01

    39/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    = )]/(1[ Ls ssFss s

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    =

    22/2

    2

    1

    Lssw

    w

    L dwe

    s

    s

    ]2

    1[)]/(1[

    2

    2

    1

    = Lss

    LLs essFss s

    ss

    )2/:(note 2zw=

    ESC derivation

    s

    de

    Lss

    = 22/2 2

    1

    0

    =22/22

    1

    Lss

    es

    2)/(21

    2

    1 Lsse

    s

    =

    39

  • 8/10/2019 099S131_AA06L01

    40/54

    Proof

    =

    =

    Lssz

    z

    L dzesszESC

    s s

    /

    2/2

    2

    1)(

    =

    Lssz

    z

    L dzz e

    s s

    /

    2/2

    2

    1

    = )]/(1[ Ls ssFss s

    =

    =

    Lssz

    z dzss es /

    2/2

    2

    1

    s=

    s2L2/ssw

    w

    L

    2

    dw

    2

    1e )2/:(note

    2zw=

    ]2

    1[)]/(1[

    2

    2

    1

    = Lss

    LLs essFss s

    ss

    )/()]/(1[ LsLLs ssfssFss sss =

    40

  • 8/10/2019 099S131_AA06L01

    41/54

    Evaluating Fill Rate Given a Replenishment Policy

    010

    1101

    1

    ,,,/

    ,,,/

    LL

    L

    L

    sL

    L

    s

    ssNORMDIST

    ssNORMDISTss

    ssf

    ssFssESC

    ss

    ss

    s

    s

    =

    =

    f (x) is density function of demand

    distribution during the lead time

    fr=1- =

    In the case of normal distribution, we have

    ESCX=ROP

    =(X-ROP) f(x)dx

    For a continuous review policy

    Expected shortage per replenishment cycle (ESC) is the average units

    of demand that are not satisfied from inventory in stock per cycle

    ESC

    Q

    Q-ESC

    Q

    41

  • 8/10/2019 099S131_AA06L01

    42/54

    Example

    For a continuous review system with the following data

    Lot size ,Q=10,000

    DL=5,000 sL= 707

    ss=ROP-DL=6,000-5,000=1,000

    ESC= -1,000[1-NORMDIST(1000/707,0,1,1)]

    fr

    = =0.997510,000

    10,000-25

    +707xNORMDIST(1000/707,0,1,1)

    =25

    42

  • 8/10/2019 099S131_AA06L01

    43/54

    Excel-Demo

    For a continuous review system with the following data

    Lot size ,Q=10,000

    DL=5,000 sL= 707

    ss=ROP-DL=6,000-5,000=1,000

    ESC= -1,000[1-NORMDIST(1000/707,0,1,1)]

    fr

    = =0.997510,000

    10,000-25

    +707xNORMDIST(1000/707,0,1,1)

    =25

    43

    http://creativecommons.org/licenses/by-nc-sa/3.0/tw/
  • 8/10/2019 099S131_AA06L01

    44/54

    Factors Affecting Fill Rate

    Safety inventory

    Fill rate increases if safety inventory is increased. This also increases thecycle service level.

    Lot size

    Fill rate increases with the increase of the lot size even though cycle

    service level does not change.

    44

    Factors Affecting Fill Rate -- Page 42

  • 8/10/2019 099S131_AA06L01

    45/54

    Ls CSLFss s=

    )(1

    )/()]/(1[ LsLLs ssfssFssESC sss =

    fr= 1- ESC/Q

    fr= 1- ESC/Q

    CSL= F(ROP, DL, sL) is independent of Q

    Safety inventory

    Fill rate increases if safety inventory is increased. This also increases the

    cycle service level.

    ,f,, CSLESCss r

    Lot size

    Fill rate increases on increasing the lot size even though cycle service

    level does not change.

    45

    Evaluating Safety Inventory

  • 8/10/2019 099S131_AA06L01

    46/54

    Given Desired Fill Rate

    ==

    L

    sL

    L

    s

    ssssFssESC f s

    ss

    1250

    = 0,1,1,1250L

    ssNORMDISTL

    L

    ssNORMSDISTsss

    ss

    If desired fill rate is fr= 0.975, how much safety inventory should be held?

    ESC= (1 - fr)Q= 250Solve

    46

    Excel-Demo

  • 8/10/2019 099S131_AA06L01

    47/54

    47

    Evaluating Safety Inventory

    http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/
  • 8/10/2019 099S131_AA06L01

    48/54

    Given Desired Fill Rate

    ==

    L

    sL

    L

    s

    ssssFssESC f s

    ss

    1250

    = 0,1,1,1250L

    ssNORMDISTL

    L

    ssNORMSDISTsss

    ss

    If desired fill rate is fr= 0.975, how much safety inventory should be held?

    ESC= (1 - fr)Q= 250Solve

    48

    Evaluating Safety Inventory Given Fill

  • 8/10/2019 099S131_AA06L01

    49/54

    Rate

    Fill Rate Safety Inventory

    97.5% 67

    98.0% 183

    98.5% 321

    99.0% 499

    99.5% 767

    The required safety inventory grows rapidly with an

    increase in the desired product availability (fill rate).

    49

    Two Managerial Levers to Reduce Safety Inventory

  • 8/10/2019 099S131_AA06L01

    50/54

    Safety inventory increases with an increase in the lead time and

    the standard deviation of periodic demand.

    Reduce the underlying uncertainty of demand ( sD)

    Reduce the supplier lead time (L)

    k

    If lead time decreases by a factor of k, safety inventory in the retailerdecreases by a factor of .

    If sDis reduced by a factor of k, safety inventory decreases by afactor of k.

    The reduction in sDcan be achieved by reducing forecast uncertainty,

    such as by sharing demand information through the supply chain.

    It is important for the retailer to share some of the resulting benefits tothe supplier.

    50

    Impact of Supply Lead time) Uncertainty on

  • 8/10/2019 099S131_AA06L01

    51/54

    Safety Inventory

    222

    LDL SDL = ss

    Assume demand per period and replenishment lead time are normally distributed

    D:Average demand per periodsD:Standard deviation of demand per period (demand uncertainty)

    L:Average lead time for replenishment

    SL:Standard deviation of lead time (supply uncertainty)

    Consider continuous review policy, we have:

    Demand during the lead time is N(DL,sL2)

    DLDL =

    51

    Example

  • 8/10/2019 099S131_AA06L01

    52/54

    550,17725005007

    500,177500,2

    9.0)days(7)days(7500500,2

    222222 ======

    =====

    LDL

    L

    LD

    SDL

    DLD

    CSLSLD

    ss

    s

    491,221 == Ls

    CSLFss s

    SL L ss(units) ss(days)

    6 15,058 7.72

    5 12,570 6.44

    4 10,087 5.17

    3 7,616 3.90

    2 5,172 2.65

    1 2,828 1.45

    0 1,323 0.68

    Suppose we have

    Required safety inventory,

    A reduction in lead time uncertainty can help reduce safety inventory

    19,298

    16,109

    12,927

    9,760

    6,628

    3,625

    1,695

    52

  • 8/10/2019 099S131_AA06L01

    53/54

    /

    5

    CoolCLIPS

    (http://dir.coolclips.com/Popular/World_of_Industry/Food/Shopping_cart_full_of_gr

    oceries_vc012266.html)2011/12/28465265

    6WIKIPEDIA(http://en.wikipedia.org/wiki/File:Palm-m505.jpg)2012/2/21

    6Microsoft Office 2007Microsoft

    465265

    19

    19

    22

    22

    53

    http://dir.coolclips.com/Popular/World_of_Industry/Food/Shopping_cart_full_of_groceries_vc012266.htmlhttp://dir.coolclips.com/Popular/World_of_Industry/Food/Shopping_cart_full_of_groceries_vc012266.htmlhttp://en.wikipedia.org/wiki/File:Palm-m505.jpghttp://office.microsoft.com/zh-hk/HA010152965.aspxhttp://office.microsoft.com/zh-hk/HA010152965.aspxhttp://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://get.nccu.edu.tw:8080/getcdb/handle/getcdb/127023http://en.wikipedia.org/wiki/Public_domainhttp://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://get.nccu.edu.tw:8080/getcdb/handle/getcdb/127023http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://office.microsoft.com/zh-hk/HA010152965.aspxhttp://office.microsoft.com/zh-hk/HA010152965.aspxhttp://en.wikipedia.org/wiki/File:Palm-m505.jpghttp://en.wikipedia.org/wiki/File:Palm-m505.jpghttp://en.wikipedia.org/wiki/File:Palm-m505.jpghttp://dir.coolclips.com/Popular/World_of_Industry/Food/Shopping_cart_full_of_groceries_vc012266.htmlhttp://dir.coolclips.com/Popular/World_of_Industry/Food/Shopping_cart_full_of_groceries_vc012266.html
  • 8/10/2019 099S131_AA06L01

    54/54

    /

    33

    WIKIPEDIA(http://en.wikipedia.org/wiki/File:10_DM_Serie4_Vorderseite.jpg)

    2012/2/21

    43

    47

    47

    54

    http://en.wikipedia.org/wiki/File:10_DM_Serie4_Vorderseite.jpghttp://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://en.wikipedia.org/wiki/Public_domainhttp://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://creativecommons.org/licenses/by-nc-sa/3.0/tw/http://en.wikipedia.org/wiki/File:10_DM_Serie4_Vorderseite.jpg