5 reasons for keeping inventory (LUBES)
- Managing Lead times
- temporing Uncertainty
- Buffering processess
- Economies of Scale
- improving Service levels
Independent Demand
Finished Good
Dependent Demand
Needs to be assembled. (100 biles = 200 tires)
What is the most important reason for holding inventory?
Service level, the probability the item will be in stock when needed.
3 types of inventory
- Work in progress
- Finished Goods
- Raw Materials
3 Steps in WIP. Which one brings most value?
Upstream, downstream, core processes?
- Waiting to be processed
- Being processed
- Waiting to be moved
most value added #2
Inventory velocity
Rate at which firms dispose inventory
Inventory turnover rate
COGS / Avg. inventory –> 365 / inventory turnover (days)
2 types of reorder points:
Deterministic Reorder (constant demand) Stochastic Reorder (variable demand)
Effect of inventory on bottom line
even the minor mismanagement of inventory can have a significant impact on the gaps between bottom line, affecting variability as a company.
Firms can do 2 things to improve velocity
- Reduce Inventory
2. Reduce Amount of time the firm “owns” the inventory (consignment and vendor managed)
Economic Order Quantity (reduces two things)
- Holding Costs
2. Purchasing Costs
Reorder Point (two things to multiply)
Daily Demand and lead time
Inventory makes up how much % of national gross product
20-25%
2 competing demands in sales and operations
Sales $increasin
operations $ decreasin
8 rights of logistice
- Product
- Time
- place
- quantity
- condition
- customer
- cost
- documentation
Lostics cost ___% of a companies revenue and is the ___ highest cost for a company next to COGS
10%
2nd
4 things that logistics can provide a strategic advantage through
- Cost
- Flow
- Access
- Sustainability
3 fundamental logistics trade-offs
- Cost to Cost -> slower shipping reduced costs
- Model trade offs -> trucks v trains
- Cost to service - impoving service costs will cost more money
5 modes of transportation
- maritime
- train
- truck
- air
- pipeline
Factor rating analysis
- identify key selector factors
- determine weights / relative importance
- evaluate
2 components to logistics
PLACE and TIME
5 logistics processes
- Demand processing
- Inventory Management
- Transportation
- Warehousing
- structural Networks
3 types of projects
- Pure projects
- matrix organization (most challenging because 2 bosses)
- Functional Project organizations
