Lead Time

1. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
AEMN328
Logistics and Transportation
Logistics and Transportation
(Supply Chain Management)
Inventory Reorder Point
Inventory Reorder Point
Mohammad Tawfik

2. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Re-order Point

3. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Supplier Lead-time
●
Supplier delivers the product a fixed time after the order
is placed
●
This is called the lead-time (L)
●
If lead-time (L) is fixed we can anticipate the delay and
order earlier
●
“Order when the amount of inventory on-hand is D*L”
●
This is called the Re-Order Point (ROP)

4. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org

5. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
For all that … Demand was assumed to be
determinant (certain) …
What if the demand fluctuates?
What if the demand fluctuates?

6. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org

7. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
How much safety stock should we have?
How much safety stock should we have?

8. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Probability!
●
What is the probability of …?
– Coin Flip
– Dice throw
– Distance thrown!!!
●
What is the probability distribution?
●
What is Normal probability distribution?

9. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Source: Wikipedia
https://en.wikipedia.org/wiki/Normal_distribution

10. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Source: Wikipedia
https://en.wikipedia.org/wiki/Normal_distribution

11. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What is Standard Deviation?
●
It is a measure of how far from average your
actual point may be!
●
The more the standard deviation the less
certain your are in your expectations!!!

12. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What is the probability that ...
●
You get the average or less? 50%
●
You get less than the (average + standard
deviation)? 84%
●
You get the value of Z or less more than the
average? P(x<=Aver. + Z) = normsdist(Z)

13. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Now, comes the important question
●
What is the value of Z, such that the probability
P(x<=Z*Standard Deviation)>=Service level?
●
Z=normsinv(service level)

14. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What is the service level?
●
It is the probability that you will be able to cover
ALL
ALL requests during a certain period of time.

15. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
How to calculate safety stock?
1 Get average and standard deviation
2 Select service level
3 Evaluate the Z-value corresponding to your
service level
4 Safety Stock = Z-value * Standard Deviation

16. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Example
●
Zeco consumes an average of 10kg of sugar
everyday
●
The standard deviation of consumption is 2kg.
●
How much safety stock should he keep in the
cafe to have a service level of 90%, 95%, and
99%?

17. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Solution
●
For the service levels:
– 90% ==> Z=1.28 ==> Safety Stock = 2.56 ~ 3Kg
– 95% ==> Z=1.64 ==> Safety Stock = 3.29 ~ 4Kg
– 99% ==> Z=2.33 ==> Safety Stock = 4.65 ~ 5Kg

18. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What if the lead time is not certain?

19. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Uncertain Lead Time
●
If the lead time has an average of L and a standard
deviation of SL
●
And, the demand has an average of D and a standard
deviation of SD
●
Then the standard deviation value used for calculation
of the safety stock should be:
S=sqrt((L * SD^2) + (D^2 * SL^2))

20. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Measuring Performance

21. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org

22. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org

23. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Assignment #4
Assignment #4

24. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Al-Yomn Steel
●
What is the average weekly demand?
●
If the supply lead-time is one week, what should the Reorder Point
be?
●
If the supplies are delivered on a lead time of a weekly basis, what
should the Reorder Point be to achieve a service level of 95%?
●
If the lead time standard deviation is 2 days, what should the
safety stock be to achieve 95% service level?
●
Download the data spreadsheet from this link

25. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
References

26. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
Supply Chain Logistics, Rudolf Leuschner, Ph.D.
https://www.coursera.org/learn/supply-chain-logistics?specialization=supply-
chain-management
●
Supply Chain Operations, Rudolf Leuschner, Ph.D.
https://www.coursera.org/learn/operations?specialization=supply-chain-man
agement
●
Supply Chain Planning, Rudolf Leuschner, Ph.D.
https://www.coursera.org/learn/planning?specialization=supply-chain-manag
ement
●
Supply Chain Sourcing, Rudolf Leuschner, Ph.D.
https://www.coursera.org/learn/sourcing?specialization=supply-chain-manag
ement

27. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
Supply Chain Management Strategy, Rudolf Leuschner, Ph.D.
https://www.coursera.org/learn/supply-chain-management-strategy
●
Operations Management: Analysis and Improvement Methods, Udatta
Palekar, PhD
https://www.coursera.org/learn/operations-management?specializatio
n=value-chain-management
●
Operations Management: Strategy and Quality Management for the
Digital Age, Udatta Palekar, PhD
https://www.coursera.org/learn/process-improvement?specialization=
value-chain-management

28. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“What does a Supply Chain Engineer do?”, StepStone,
https://www.stepstone.be/career-advice/article/supply-chain-engineer/
●
“Supply Chain Engineer job description template”, Hiring Resources,
https://recruitee.com/hiring-resources/job-description-templates/supply-chain-e
ngineer/
●
“What is supply chain management (SCM)?”, TechTarget®
https://searcherp.techtarget.com/definition/supply-chain-management-SCM
●
“Supply chain management”, WikiPedia,
https://en.wikipedia.org/wiki/Supply_chain_management
●
“The three flows of supply chain”, Nifemi Aluko,
https://kpakpakpa.com/spotlight/the-three-flows-of-supply-chain/

29. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“Consumer Behaviour, Brand Management, Marketing and Psychology”,
Brandalyzer,
https://brandalyzer.blog/2016/03/23/the-five-major-flows-in-supply-chain/
●
“Top 3 Strategies To Improve The Supply Chain Performance In Your Business”,
Darren Woolard,
https://www.dmg-freight.com/top-3-strategies-to-improve-supply-chain-performance
-in-business/
●
“5 Ways to Increase Supply Chain Performance”, Zoe Meeken,
https://www.business.org/software/supplier/ways-to-increase-supply-chain-perform
ance/
●
“7 Tips for Effective Inventory Management in Global Supply Chain”, TradeGecko,
https://www.tradegecko.com/blog/7-tips-for-effective-inventory-management-in-a-gl
obal-supply-chain

30. Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“Supply Chain Management: Inventory Management”, Donglei Du
●
“Business-Plan Forecasting”, Steven D. Peterson, Peter E. Jaret, Barbara
Findlay Schenck
●
“Excel Sales Forecasting For Dummies”, Conrad Carlberg
●
“Sales Forecasting: A Practical Guide”, Mark Blessington
●
“Sales and Operations Planning The How-To Handbook”, Thomas F.
Wallace and Robert A Stahl
●
“Introduction to Financial Forecasting in Investment Analysis”, John
Guerard