Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 52 views

    Session 5 - Upload

    Uploaded by

    Kriti Sharma
    Ralph Lauren appointed a new CEO in 2016 whose first task was to cut costs by reducing inventory levels. This led to profits dropping 50% over the next two years as inventory lead times were previously 15 months, causing issues like being unresponsive to trends. Marks & Spencer admitted failure to stock popular clothing sizes in the autumn of 2019, costing them almost £5 million. They had too much stock and needed to do markdowns. There are different types of inventory including cycle, safety, seasonal/anticipatory, work-in-progress, and pipeline inventories. Economic order quantity models can help determine optimal order quantities by minimizing total inventory costs from ordering and holding costs. Continuous and periodic review policies approach

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    Session 5 - Upload

    Uploaded by

    Kriti Sharma
    52 views27 pages
    Ralph Lauren appointed a new CEO in 2016 whose first task was to cut costs by reducing inventory levels. This led to profits dropping 50% over the next two years as inventory lead times were previously 15 months, causing issues like being unresponsive to trends. Marks & Spencer admitted failure to stock popular clothing sizes in the autumn of 2019, costing them almost £5 million. They had too much stock and needed to do markdowns. There are different types of inventory including cycle, safety, seasonal/anticipatory, work-in-progress, and pipeline inventories. Economic order quantity models can help determine optimal order quantities by minimizing total inventory costs from ordering and holding costs. Continuous and periodic review policies approach

    Original Title

    Session 5_Upload (1)

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Ralph Lauren appointed a new CEO in 2016 whose first task was to cut costs by reducing inventory levels. This led to profits dropping 50% over the next two years as inventory lead times were previously 15 months, causing issues like being unresponsive to trends. Marks & Spencer admitted failure to stock popular clothing sizes in the autumn of 2019, costing them almost £5 million. They had too much stock and needed to do markdowns. There are different types of inventory including cycle, safety, seasonal/anticipatory, work-in-progress, and pipeline inventories. Economic order quantity models can help determine optimal order quantities by minimizing total inventory costs from ordering and holding costs. Continuous and periodic review policies approach

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    52 views27 pages

    Session 5 - Upload

    Uploaded by

    Kriti Sharma
    Ralph Lauren appointed a new CEO in 2016 whose first task was to cut costs by reducing inventory levels. This led to profits dropping 50% over the next two years as inventory lead times were previously 15 months, causing issues like being unresponsive to trends. Marks & Spencer admitted failure to stock popular clothing sizes in the autumn of 2019, costing them almost £5 million. They had too much stock and needed to do markdowns. There are different types of inventory including cycle, safety, seasonal/anticipatory, work-in-progress, and pipeline inventories. Economic order quantity models can help determine optimal order quantities by minimizing total inventory costs from ordering and holding costs. Continuous and periodic review policies approach

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 27

    Operations and Supply Chain

    Management
    SESSION 5

    S H I VA N E E P E T H E
    Inventory Management
    Ralph Lauren: Inventory Cuts
    In 2016 Ralph Lauren appointed a new chief executive – Stefan Larsson. Stefan’s first task?
    Cut costs in inventory and warehouse management. That meant a ‘refocus’ on the brand’s best-
    selling labels, cutting it’s different layers of management and closing stores.
    The result of such dramatic changes? Profits plummeted 50 percent in the two years to follow.
    The brand had an inventory lead time of fifteen months which kicked up several issues. Firstly,
    the company couldn’t be responsible when it came to being reactive with trends. Secondly,
    holding on to so much excess stock was expensive. Third, Ralph Lauren’s inventory grew by 26%
    over three years, but sales only grew by 7%.
    The end result? Lots of discounted stock, lots of promotions, and a desperate need to shift shock
    Marks & Spencer’s : Failure to Stock
    Marks & Spencer’s admitted failure to stock enough clothes in popular sizes during autumn of
    2019.
    They called it a “challenging period” for their clothing and homeware business.
    After-sales falling 2.1% in the space of a few months the brand quickly released this inventory
    oversight was costing them almost £5 million.
    As well as poor availability of stock, the brand also admitted to too much stock and markdown
    on their clothing line.
    Kinds of Inventory
    Cycle Inventory: Fulfil regular sales
    Safety Stock: Inventory to avoid losing sales during lead time
    Seasonal/Anticipatory Inventory: In hopes of surge
    WIP Inventory: Stock of unfinished goods
    Pipeline Inventory: Product “in transit”
    Shelf Inventory: Inventory as an “ad”
    Questions to Ask
    What should be the order quantity?

    When should the order be placed (re-order point)?

    How much safety stock should be maintained?


    Elements of Inventory Policy
    Demand
    Lead time for replenishment
    Length of planning horizon
    Service level requirements, if any
    Costs:
    ◦ Ordering Costs
    ◦ Holding Costs
    Economic Order Quantity
    Basic model for determining cycle inventory
    Applications:
    ◦ Inventory for ChaiPoint
    ◦ Automobile Service Stations
    ◦ Fast food chains such as KFC and McDonalds

    Model Assumptions:
    ◦ Demand is known, certain and constant over time
    ◦ Lead time is constant and known
    ◦ Entire order quantity is received at the end of the lead time
    ◦ No shortages allowed
    ◦ Infinite planning horizon
    EOQ Model
    Annual demand is
    Holding cost or inventory carrying cost is per unit
    Ordering cost is per order

    The decision to be made is the quantity to be ordered which is


    Optimal inventory level is where total of ordering cost and holding cost is minimum

    Let’s begin by assuming a model having lead time = 0


    EOQ Model
    • Number of times order placed .
    • Total ordering cost
    • Average Inventory
    • Holding Cost
    • Total Cost
    Simple derivative gives, Optimal Order Quantity
    EOQ Model
    What if demand is uncertain?
    Continuous Review Policy or Fixed-Order Quantity Models
    ◦ Inventory is reviewed continuously and a decision is made about whether and how much to
    order
    Objective: Determine the inventory re-order point at which an order of size Q will be placed

    Periodic Review Policy or Fixed-Time Period Models


    ◦ Inventory level is reviewed at regular intervals and an appropriate quantity is ordered after
    each review
    Objective: Determine the quantity to be ordered at each inventory review
    Example: Commercial coffee machine
    Some terms to remember
    Safety Stock: Buffer added to on-hand inventory to tide over lead
    time
    Stockout: Situation where there is no inventory left to satisfy
    demand
    Service Level: Probability that inventory available during the lead
    time will meet the demand
    Continuous Review Policy: Assumptions
    Infinite planning horizon
    Daily demand is random, probabilistic and continuous
    Inventory level is reviewed continuously. If an order is placed, it arrives after the specified lead
    time
    Lead time is constant and known
    If a customer order arrives when there is no inventory, the order is lost
    There is a specified service level (the probability of not stocking out during lead time)
    ◦ This can be interpret as the knowing the proportion of times we may tolerate a stockout
    Continuous Review Policy

    Safety Stock
    Continuous Review Policy
    Demand for the period (week/month/year etc) is
    We denote as a tabulated value value of the standard normal distribution
    Lead time is time periods
    Holding cost is per unit per unit time
    Probability of stockout during a cycle is

    We calculate two things: re-order point and order quantity


    Continuous Review Policy: How to
    We place an order at which will be received after periods, thus stockouts can only happen in
    these periods
    Calculate the total demand distribution in Lead time by combining i.i.d normal distributions (we
    ignore covariances assuming demands are independent)
    P(stockout in lead time) = =
    Using logic of area under normal curve, we get value of
    Using EOQ, we calculate the amount to be ordered replacing with the total expected demand
    for the year
    Continuous Review Policy: Example
    A paint store wants to maintain a service level of 95% for their white paint.
    After some analysis, they’ve figured out that their daily demand follows normal distribution with
    mean 30 gallons and variance of 25 gallons.
    Once they place their order for restocking, it takes 10 days for the paint to be delivered.
    Given: value corresponding to 95% service level is 1.65

    Determine reorder point and amount of safety stock.


    Continuous Review Policy: Solution
    CRP: Various reorder points
    Variable Lead time, Constant Demand
    ◦ Demand is constant per period
    ◦ Lead Time

    ◦ Safety stock =

    Variable Lead Time, Variable Demand


    ◦ Lead Time
    ◦ Demand
    ◦ of demand during lead time =

    ◦ Safety stock =
    Periodic Review Policy: Assumptions
    Infinite planning horizon
    Daily demand is random, probabilistic and continuous
    Inventory level is reviewed after certain time. I order at the beginning of every review period.
    If an order is placed, it arrives after the specified lead time
    Lead time is constant and known
    If a customer order arrives when there is no inventory, the order is lost
    There is a specified service level (the probability of not stocking out during lead time)
    ◦ This can be interpret as the knowing the proportion of times we may tolerate a stockout
    Periodic Review Policy

    R R R
    Periodic Review Policy
    Assuming same parameter notations as in Continuous Review Policy, except which denotes the
    order upto level in periodic review
    We calculate the safety stock and order upto quantities for the period Review time +Lead time

    Cycle time is still R, not L+R


    Safety inventory is higher for the periodic review since the risky time period is higher (L+R
    against L)
    Average Inv =
    Periodic Review Policy: Example
    A random firm has to fulfil an average demand of 6 packages a day with a variance of 1.44
    packages.
    They review their inventory every 60 days and the lead time is 5 days. At the time of their third
    review they have 8 packages in inventory.
    They want to maintain a service level of 95% (z=1.65).

    Find the safety stock, order upto level and the amount ordered at the time of the third review.
    Periodic Review Policy: Solution
    A Hint Table
    Continuous Review Periodic Review

    Order Quantity Constant Variable

    Time between orders Variable Constant

    When to order? When inventory drops to Pre-assigned review time


    reorder level points
    Thank You!

    You might also like