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Aemn328 logistics and transportation part04

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Aemn328 logistics and transportation part04

1. 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
3. 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)
5. 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?
7. 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. 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?
11. 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. 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. 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. 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. 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. 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. 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