Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
AEMN328
Logistics and Transp...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Inventory
Inventory
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What are Inventories?
●
Inve...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Reasons for Inventories
●
Tr...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Types of Inventories
●
Based...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Types of Inventories
●
Based...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Inventory
Inventory
Manageme...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Back to Zeco :)
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What inventory does Zeco hav...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
The most important question ...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
The motive for inventory:
●
...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Imagine having to buy sugar ...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
The motive for inventory:
●
...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What if you get to buy sugar...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Or worse …
Customer have to ...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
The motive for inventory:
●
...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Imagine having to say:
“Sorr...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
What is the purpose of inven...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Purpose of Inventory Managem...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Purpose of Inventory Managem...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Purpose of Inventory Managem...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Inventory Metrics
●
Macro le...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Example
●
To make sure that ...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Solution
●
Inventory Turnove...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Question!
●
In the case of Z...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Order Quantity
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Inventory Related Costs
●
Tr...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Inventory Related Costs
●
Ho...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Economic Order Quantity
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
The simplest case
●
Demand i...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Ordering
●
Order Cost = Numb...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Ordering
●
Total Cost = C*D/...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Practical Considerations
●
D...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
Assignment #3
Assignment #3
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
AlYomn Steel Sales
●
Accordi...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
References
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
Supply Chain Lo...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
Supply Chain Ma...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“What does a Su...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“Consumer Behav...
Supply Chain Management
Mohammad Tawfik
#AcademyOfKnowledge
http://SCM.AcademyOfKnowledge.org
References
●
“Supply Chain M...
Upcoming SlideShare
Loading in …5
×

Supply Chain Management 03 - Inventory Management

Why do we need inventory?
Types of Inventory
Optimum ordering quantity

  • Be the first to comment

  • Be the first to like this

Supply Chain Management 03 - Inventory Management

  1. 1. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org AEMN328 Logistics and Transportation Logistics and Transportation (Supply Chain Management) Inventory Management Inventory Management Mohammad Tawfik
  2. 2. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Inventory Inventory
  3. 3. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org What are Inventories? ● Inventories are goods or materials that are in any stage of readiness that are being held for future sale
  4. 4. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Reasons for Inventories ● Transactional efficiency ● Speculation ● Hedging
  5. 5. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Types of Inventories ● Based on stage of completion – Raw material – Work-In-Process – Finished goods
  6. 6. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Types of Inventories ● Based on reason for keeping – Cycle inventory due to batching – Anticipation inventory for seasonality – Safety stock to buffer against uncertainty – Pipeline inventory that is on-order or in-transit – Strategic inventory to position for better negotiation
  7. 7. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Inventory Inventory Management Management
  8. 8. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Back to Zeco :)
  9. 9. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org
  10. 10. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org What inventory does Zeco have?
  11. 11. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org The most important question that YOU need to answer is: WHY do I need inventory? WHY do I need inventory?
  12. 12. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org The motive for inventory: ● Transaction motive Transaction motive: Economies of scale is achieved when the number of set-ups are reduced or the number of transactions are minimized. Donglei Du
  13. 13. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Imagine having to buy sugar 10 times a day each for 1 kg!
  14. 14. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org The motive for inventory: ● Precautionary motive Precautionary motive: hedge against uncertainty, including demand uncertainty, supply uncertainty Donglei Du
  15. 15. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org What if you get to buy sugar, and your supplier is out of it!!!
  16. 16. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Or worse … Customer have to wait until you purchase the sugar each time a cup of coffee is ordered!!!
  17. 17. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org The motive for inventory: ● Speculative motive Speculative motive: hedge against price increases in materials or labour Donglei Du
  18. 18. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Imagine having to say: “Sorry sir, but the coffee price have changed because the sugar price went up an hour ago”
  19. 19. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org What is the purpose of inventory management?
  20. 20. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Purpose of Inventory Management ● The objective of inventory is to achieve satisfactory levels of customer service while keeping inventory costs within reasonable inventory costs within reasonable bounds bounds. Donglei Du
  21. 21. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Purpose of Inventory Management ● Level of customer service: – (1) in-stock rate ”Yes sir, coming right-away” ”Yes sir, coming right-away” – (2) number of back orders ”Sorry sir, you need to wait until we buy the sugar” ”Sorry sir, you need to wait until we buy the sugar” – (3) inventory turnover rate: the ratio of average cost of goods sold to average inventory investment ”Since we use sugar all the time, let’s build a sugar factory” ”Since we use sugar all the time, let’s build a sugar factory” Donglei Du
  22. 22. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Purpose of Inventory Management ● Inventory cost: cost cost of ordering ordering and carrying carrying trade-off Donglei Du
  23. 23. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Inventory Metrics ● Macro level metrics ● Inventory Turnover Ratio or Inventory Turns – = Cost of Goods Sold / Average Inventory (over a certain period) ● Periods(days/weeks/months) of Inventory – = Average Inventory / Cost of Goods Sold ● Inventory Turnover is the reciprocal of Periods of Inventory
  24. 24. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Example ● To make sure that he never runs out of stock, Zeco decided to keep 1 day-worth of supplies, all the time, in the store. ● What is the inventory turnover ratio of Zeco cafe?
  25. 25. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org
  26. 26. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Solution ● Inventory Turnover Ratio or Inventory Turns – = Cost of Goods Sold / Average Inventory (over a certain period) = 1/1.5 = 66.7% ● Periods(days/weeks/months) of Inventory – = Average Inventory / Cost of Goods Sold = 1.5/1 = 150%
  27. 27. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Question! ● In the case of Zeco Cafe, can the average inventory become zero? ● If yes, how? ● If no, what is the minimum average inventory period in any given period?
  28. 28. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Order Quantity
  29. 29. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Inventory Related Costs ● Transaction costs for each order – Ordering – Receiving – Costs of transporting
  30. 30. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Inventory Related Costs ● Holding costs (depend on how much average inventory) – Storage costs – Cost of working capital
  31. 31. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Economic Order Quantity
  32. 32. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org The simplest case ● Demand is known with certainty ● Demand (D) is constant ● Order is received instantaneously
  33. 33. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Ordering ● Order Cost = Number of Orders * (Shipping Cost + Ordering Cost + Receiving Cost) ● Inventory Cost = Holding Cost * Average Inventory + Storage Cost
  34. 34. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Ordering ● Total Cost = C*D/Q + H*Q/2 + S ● To minimize cost, differentiate and equate by zero ● Q(optimum) = sqrt(2*D*C/H)
  35. 35. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Practical Considerations ● Difficult to accurately assess costs ● Suppliers insist on minimum order quantities ● Suppliers only supply in package quantity
  36. 36. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org Assignment #3 Assignment #3
  37. 37. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org AlYomn Steel Sales ● According to the demand data provided in the spreadsheet: – What is the average monthly demand? – What is the standard deviation in the monthly demand? – If the transportation cost is LE2400, the cost of working capital is 15% annual returns, warehouse cost is free, receiving cost LE250. What would the optimum ordering quantity be? – If the steel is subject to deterioration rate of 1% per month, how much would the optimum ordering quantity be? – Download the data spreadsheet from this link
  38. 38. Supply Chain Management Mohammad Tawfik #AcademyOfKnowledge http://SCM.AcademyOfKnowledge.org References References
  39. 39. 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
  40. 40. 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
  41. 41. 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/
  42. 42. 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
  43. 43. 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

×