Inventory Mgmt

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18th May 2011

Table of Contents
Need for Inventory Underlying Principles Current Philosophies of Inventory Mgmt

Pros and Cons of IM Principles
TOC and MEIO Primary Needs of an Effective IM System MapMySupplyChain

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Need for Inventory
Inventory Need Principles Philosophies Pros and Cons TOC and MEIO Effective IM System MapMySupply Chsin

 To tide against Supply Chain Uncertainities – Transporter uncertainity, Supplier Lead

Time, etc.
 Ensure all Customers, at every location are served at the right time, with the right

quantity
 Normally, Sales People would like to Stock up, as much Inventory as possible, so that

Stock Out scenarios are ruled out
 On the other hand, the CFO would like to cut inventories, so that the capital costs are

kept in check
 If Planned properly, Inventory will have a positive impact on Customer Satisfaction  If Planning of Inventory is inaccurate, then it leads to either:  Stock outs, Customer Dissatisfaction, lost sales and indirect cost increase or  Increase in Capital Costs, Obsolescence and raises Operational challenges

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Underlying Principles
Inventory Need Principles Philosophies Pros and Cons TOC and MEIO Effective IM System MapMySupply Chsin

 Underlying assumptions that define a Supply Chain Inventory model is often

conflicting. This is depicted in the figure.
Underlying principle conflict

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Current Philosophies of Inventory Management
Inventory Need Principles Philosophies Pros and Cons TOC and MEIO Effective IM System MapMySupply Chsin

 Inventory Management in the current context, is designed to be held closer to the customers

 But not all products/SKUs can be held close to the Customers, at all times. This means there would be further classification of SKUs as fast moving, slow moving, etc. and then the fast moving SKUs will be stocked closer to the Customer. At the same time, the slow moving will be held closer to the place of manufacture  This leads to formation of echelons. The fresh order receipts, are at the Regional Warehouse or Motherhouse and the SKUs are then moved to a local Distribution for further storage, before dispatch  The issues with Multi - echelon formation, is that Inventory Planning, at times are carried out for One – echelon, without taking into consideration its effect on other echelons  This may either lead to excess Inventory stocking in one or more of the echelons OR stock out situation in any one of the echelons

Plant

Regional Warehouse

Local Warehouse

Customer

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Current Philosophies of Inventory Management
Inventory Need Principles Philosophies Pros and Cons TOC and MEIO Effective IM System MapMySupply Chsin

 Further, the quanity that needs to be held at each level is a question mark  A company may have around 1000 SKUs, out of which 10 may be fast moving, in one market and slow moving in 4 other markets.Similarly few other SKUs may be fast moving in a totally different market. So how much Inventory should we hold?  To be safe few companies, may not only stock excess inventory in the local warehouses but also in the regional warehouses  At one end the supply chain the question is how much to produce? And at the other end the question is how much will be consumed?

Plant
Quantity

Regional Warehouse
Quantity

Local Warehouse

Customer

SKU

SKU

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Pros and Cons of IM Philosophies
Inventory Need Principles Philosophies Pros and Cons TOC and MEIO Effective IM System MapMySupply Chsin

Sr. No.

Pros

Cons

1.

Customer Demands may The Inventory Carrying Cost to meet Customer be met Demand is too high

2.

The Regional Warehouse can act as an extended Buffer Stock for Local Warehouses

The...
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