电子商务物流Note04InventoryManagement.doc

Chapter Four Inventory ManagementI. Learning objectives and requirements 1. to know the types and characteristics of Inventory2. to know the inventory functionality3. to know some inventory-related definitions4. to know the components of inventory carrying cost5. to know the methods of determining when to order and how much to order6. to know how to manage demand uncertainty and performance cycle uncertainty7. to understand inventory management policiesII. Learning contentsSection I. Inventory Functionality and Principles1. Main contents1) Inventory Types and Characteristicsa) Raw Material Inventoryb) Work-In-Process Inventoryc) Maintenance/Repair/Operating Supply (MRO) Inventoryd) Finished Goods Inventory2) Inventory FunctionalityTable 10-2 summarizes inventory functionality. These four functionsgeographical, specialization, decoupling, balancing supply and demand, and buffering uncertainty-require inventory investment to achieve managerial operating objectives.3) Inventory-Related Definitionsa) Inventory PolicyInventory policy consists of guidelines concerning what to purchase or manufacture, when to take action, and in what quantity. It also includes decisions regarding geographical inventory positioning. b) Inventory Performance IndicatorsThe inventory policy essentially determines inventory performance. The two key indicators of inventory performance are service level and average inventory.i) Service LevelThe service level is the performance target specified by management. It defines inventory performance objectives. Service level is often measured in terms of an order cycle time, case fill rate, line fill rate, order fill rate, or any combination of these. ii) Average InventoryAverage inventory consists of the materials, components, work-in-process, and finished product typically stocked in the logistical system. From a policy viewpoint target inventory levels must be planned for each facility.c) Economic Order Quantity (EOQ)The Economic Order Quantity (EOQ) model provides a specific quantity balancing of these two critical cost components. By determining the EOQ and dividing it into annual demand, the frequency and size of replenishment orders minimizing the total cost of cycle inventory is identified. Prior to reviewing EOQ, it is necessary to identify costs typically associated with ordering and maintaining inventory.2. Key concepts and pointsInventory, Raw Material Inventory, Work-In-Process Inventory, Maintenance/Repair/Operating Supply (MRO) Inventory, Finished Goods Inventory, Inventory Functionality, Geographical Specialization, Decoupling, Balancing Supply and Demand, Buffering Uncertainty, Inventory Policy, Inventory Performance Indicators, Service Level, Performance Cycle, Case Fill Rate, Line Fill Rate, Order Fill, Average Inventory, Order Quantity, Safety Stock, Reorder Point, Inventory Turns, Economic Order Quantity (EOQ)3. Issues of applicationStudents shall know well that inventory management is risky, and risk varies depending upon a firms position in the distribution channel; and the typical measures of inventory commitment are time duration, depth, and width of commitment.Section II. Inventory Carrying Cost ComponentsInventory carrying cost is the expense associated with maintaining inventory. Inventory expense is calculated by multiplying annual inventory carrying cost percent by average inventory value. Standard accounting practice is to value inventory at purchase or standard manufacturing cost rather than at selling price.1. Main contents1) Capital CostConfusion often results from the fact that senior management frequently does not establish a clear-cut capital cost policy. For logistical planning, the cost of capital must be thought out clearly since the final rate of assessment will have a significant impact on system design and performance.2) TaxesTaxing authorities typically assess inventory held in warehouses. The tax rate and means of assessment vary by location. The tax expense is usually a direct levy based on inventory level on a specific day of the year or average inventory level over a period of time.3) InsuranceInsurance cost is an expense based upon estimated risk or loss over time. Loss risk depends on the product and the facility storing the product. Insurance cost is also impacted by facility characteristics such as security cameras and sprinkler systems that might help reduce risk.4) ObsolescenceObsolescence cost results from deterioration of product during storage. Obsolescence also includes financial loss when a product be-comes obsolete in terms of fashion or model design. Obsolescence costs are typically estimated based on past experience concerning markdowns, donations, or quantity destroyed. 5) StorageStorage cost is facility expense related to product holding rather than product handling. Storage cost must be allocated on the requirements of specific products since it is not related directly to inventory value. 2. Key concepts and pointsInventory Carrying Cost, Capital Cost, Taxes, Insurance, Obsolescence, Storage3. Issues of applicationInventory carrying cost is the expense associated with maintaining inventory. Inventory expense is calculated by multiplying annual inventory carrying cost percent by average inventory value. Standard accounting practice is to value inventory at purchase or standard manufacturing cost rather than at selling price. Students shall know the components of inventory carrying cost well that they are expected to discuss the relationship between service level, uncertainty, safety stock, and order quantity; and how trade-offs between these elements can be made.Section III. Planning Inventory Key parameters and procedures, namely, when to order, how much to order, and inventory control, guide inventory planning. 1. Main contents1) Determining When to OrderAs discussed earlier, the reorder point defines when a replenishment shipment should be initiated. A reorder point can be specified in terms of units or days supply. This discussion focuses on determining reorder points under conditions of demand and performance cycle certainty. 2) Determining How Much to OrderRelationships involving the inventory performance cycle, inventory cost, and economic order formulations are useful for guiding inventory planning. First, the EOQ is found at the point where annualized order cost and inventory carrying cost are equal. Second , average base inventory equals one-half order quantity. Third, the value of the inventory unit, all other things being equal, will have a direct relationship with replenishment order frequency. In effect, the higher the product value, the more frequently it will be ordered.2. Key concepts and pointsWhen to Order, How Much to Order, Economic Order Quantity(EOQ), Volume Transportation Rates, FOB(Free On Board), Quantity Discounts, Product Lot Size, Multiple-Item Purchase, Limited Capital, Dedicated Trucking, Unitization3. Issues of applicationInventory planning consists of determining when and how much to order. When to order is determined by average and variation in demand and replenishment. How much to order is determined by the order quantity. Inventory control is the process of monitoring inventory status. Students are expected to use reorder point formulations to determine when to order; and understand the relationship between lot sizing and inventory carrying cost with the cost of ordering to determine how much to order.Section IV. Managing UncertaintyTwo types of uncertainty have a direct impact upon inventory policy. Demand uncertainty is rate of sales during inventory replenishment. Performance cycle uncertainty concerns inventory replenishment time variations.1. Main contents1) Demand UncertaintySales forecasting estimates unit demand during the inventory replenishment cycle. Even with good forecasting, demand during replenishment cycle often exceeds or falls short of what is anticipated. To protect against a stockout when demand exceeds fore- cast, safety stock is added to base inventory. Under conditions of demand uncertainty, average inventory represents one-half order quantity plus safety stock.2) Performance Cycle UncertaintyPerformance cycle uncertainty means that inventory policy cannot assume consistent delivery. The planner should expect that actual performance cycle experience will cluster near the average and be skewed in excess of the planned duration. If performance cycle uncertainty is not evaluated statistically, the most common practice is to base safety stock requirements on the planned replenishment time. However, if there is substantial variation in the performance cycle, a formal evaluation is desirable.3) Determining Safety Stock with UncertaintyTreating both demand and performance cycle uncertainty requires combining two independent variables. The duration of the cycle is, at least in the short run, independent of the daily demand. However, in setting safety stocks, the joint impact of the probability of both demand and performance cycle variation must be determined. Safety stock requirements can be determined by either numerical or simulation procedures. 4) Dependent Demand ReplenishmentThree basic approaches have been used to introduce safety stocks into a system coping with dependent demand. First, a common practice is to put safety time into the requirements plan. A second approach is to increase the requisition by a quantity specified by some estimate of expected forecast error. The third method is to utilize the previously discussed statistical techniques for setting safety stocks directly to the component rather than to the item of top-level demand.2. Key concepts and pointsDemand Uncertainty, Performance Cycle Uncertainty, Safety Stock, Dependent Demand Replenishment, Safety Time, Over-planning Top-Level Demand3. Issues of applicationTo understand basic principles, it is useful to understand inventory relationships under conditions of certainty. Formulation of inventory policy must consider uncertainty. Students shall master two types of uncertainty directly impact inventory policy: the demand uncertainty and the performance cycle uncertainty.Section V. Inventory Management Policies1. Main contents1) Inventory ControlInventory control is the managerial procedure for implementing an inventory policy. The accountability aspect of control measures units on hand at a specific location and tracks additions and deletions. Accountability and tracking can be performed on a manual or computerized basis.2) Reactive MethodsThe reactive or pull inventory system, as the name implies, responds to a channel members inventory needs by drawing the product through the distribution channel.3) Planning MethodsInventory planning methods use a common information base to coordinate inventory requirements across multiple locations or stages in the supply chain. Planning activities may occur at the plant warehouse level to coordinate inventory allocation and delivery to multiple destinations. Planning may also occur to coordinate inventory requirements across multiple channel partners such as manufacturers and retailers. Two inventory planning methods are Fair Share Allocation and Distribution Requirements Planning (DRP).4) Collaborative Inventory PlanningEffective collaborative replenishment programs require extensive cooperation and information sharing among distribution channel participants. Collaborative planning effectively shares inventory requirements and availability between supply chain partners , thus reducing uncertainty.5) Adaptive LogicThe rationale for an adaptive system is that customer demand must usually be treated as independent; however, there are some locations and time within the supply chain, an interface exists between independent and dependent demand. The closer that since dependent demand environments reduce system demand uncertainty.2. Key concepts and pointsInventory Control, Perpetual Inventory Control, Periodic Inventory Control, Reactive/Pull inventory System, Planning Methods, Distribution Requirements Planning(DRP), Faire Share Allocation, Requirements Planning, Collaborative Inventory Planning, Quick Response, Vendor-Management Inventory, Cross-Docking, Direct Store Delivery (DSD), Profile Replenishment, Adaptive Inventory Management System3. Issues of applicationStudents are expected to discuss the differences between reactive and planning inventory logics; the advantages of each; and the major implications of each.III. Review