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1、Chapter III Inventory Management,Outline-1,Part I Concept and purposes of inventory Concept of inventory Purpose of inventory Facilitates economies of scale Offers a means of balancing supply and demandProvides protection from uncertain demandSpecializationInventory as a bufferExcessive inventory,Ou
2、tline-2,Part II Inventory Types and Inventory Management Inventory is risky Inventory TypesManufacturer inventoryWholesaler inventoryRetailer inventory Inventory Management New Trends of Inventory Management MRP&DRP,Outline-3,Part III Supplementary Reading Just-in-time Inventory Management Introduct
3、ion of just-in-timeJIT conceptAdvantage and Disadvantage of JIT Zero inventory,Part I Concept and Purposes of Inventory Concept of inventory,Inventory is costly.Inventory is a large and costly investment.Better management of firm inventories can improve cash flow and return on investment.The invento
4、ry requirements of a firm depend on the network structure and the desired level of customer service.Theoretically,a firm could stock every item sold in a facility dedicated to serve each customer.Few business operations could afford such a large inventory commitment because the risk and total cost w
5、ould be prohibitive.The objective is to achieve the desired customer service with the minimum inventory,consistent with lowest total cost.,Concept of inventory,Inventory is costly.Inventory is a large and costly investment.Better management of firm inventories can improve cash flow and return on inv
6、estment.The inventory requirements of a firm depend on the network structure and the desired level of customer service.Theoretically,a firm could stock every item sold in a facility dedicated to serve each customer.Few business operations could afford such a large inventory commitment because the ri
7、sk and total cost would be prohibitive.The objective is to achieve the desired customer service with the minimum inventory,consistent with lowest total cost.,Purposes of inventory,Facilitates economies of scale.Management may decide,for example,to purchase large quantities of an item in order to qua
8、lify for a discount.Or lower transportation costs may be realized by shipping larger quantities at one time.Similarly,a long production run may significantly reduce manufacturing costs.In every case,inventory is being utilized as a way to obtain savings in other parts of the logistics system.,Offers
9、 a means of balancing supply and demand.Some firms can only sell their products at certain times of the year.In order to utilize their fixed investment in buildings and equipment and maintain a skilled labor force,managers may decided to produce all year and store the finished goods until the sellin
10、g season arrives.,ensuring customer demandsProvides protection from certain demand.Despite managements best forecasting eunfforts,demand can never be known with absolutely certainty.Similarly,transport vehicles break down,raw materials may suddenly be unavailable.And manufacturing lines may stop.For
11、 all of these reasons,inventory is utilized to ensure that customer needs are met even when the production process itself is interrupted.Inventory enables specializationSpecialization.Inventory makes it possible for a firms plants to specialize in the products that it manufactures.The finished produ
12、cts can be shipped to field warehouses where they are mixed to fill customer orders.The economies that result from the longer production runs and from savings in transportation cost more than offsets the cost of additional handling.,Inventory is held throughout the supply chainInventory as a buffer.
13、Inventory is held throughout the supply chain to act as a buffer for the following critical interfaces:l Supplies-procurement(purchasing)l Procurement-productionl Production-marketingl Marketing-distributionl Distribution-intermediaryl Intermediary-consumer/user,Excessive inventory.Excessive invento
14、ries may compensate for deficiencies in basic design of a logistics network and to some degree inferior management.However,excessive inventory used as a crutch will ultimately result in higher than necessary total logistics cost.Symptoms of poor inventory management are described as following:Increa
15、sing number of back-ordersIncreasing investment in inventory with back-orders remaining constantLoss of customersIncreasing number of orders canceledPeriodic lack of sufficient storage spaceDeteriorating relationships with intermediaries,as typified by dealer cancellations and declining ordersLarge
16、quantities of obsolete items,New Words and Phrases,customer servicededicated to 5dedikeit prohibitive prE5hibitiv,prEu-adjtransport vehiclesspecialization n.buffer 5bQfE n.interface 5intE(:)7feis n.procurement prE5kjuEmEnt n.intermediary 7intE5mi:diEri nexcessive ik5sesiv deficiency di5fiFEnsi ncomp
17、ensate for 5kCmpEnseit,客户服务专用于禁止的，抑制的，太贵的运输工具专门化，专业化 缓冲器界面获得、采购中间人、中间商过量的短缺，缺少补偿、弥补,crutch krQtF nsymptom 5simptEm nback order cancel v.periodic piEri5Cdik adjdeteriorate di5tiEriEreit vobsolete 5CbsEli:t adj,拐杖，支撑症状，象征迟延订单取消周期性的恶化过期的，过时的，已废弃的,Part II Inventory Types and Inventory Management,Invento
18、ry is risky,Inventory management is risky,and the risk varies depending on a firms position in the distribution channel.The typical measures of inventory commitment are time duration,depth,and width of commitment.,Manufacturer inventory,For a manufacturer,inventory risk is long term.The manufacturer
19、s inventory commitment starts with raw material and component parts,includes work-in-process,and ends with finished goods.In addition,finished goods are often positioned in warehouses in anticipation of customer demand.,In some situations,manufacturers are required to consign inventory to customer f
20、acilities.In effect,this practice shifts all inventory risk to the manufacturer.Although a manufacturer typically has a narrower product line than a retailer or wholesaler,the manufacturers inventory commitment is deep and of long duration.,Wholesaler inventory,A wholesaler purchases large quantitie
21、s from manufacturers and sells smaller quantities to retailers.The economic function of a wholesaler is the capability to provide retail customers with assorted merchandise from different manufacturers in specific quantities.When products are seasonal,the wholesaler may be required to take an invent
22、ory position far in advance of the selling season,thus increasing depth and duration of risk.,A wholesaler purchases large quantities from manufacturers and sells smaller quantities to retailers.The economic function of a wholesaler is the capability to provide retail customers with assorted merchan
23、dise from different manufacturers in specific quantities.When products are seasonal,the wholesaler may be required to take an inventory position far in advance of the selling season,thus increasing depth and duration of risk.,Retailer inventory,For a retailer,inventory management is about buying and
24、 selling speed.The retailer purchases a wide variety of products and assumes a substantial risk in the marketing process.Retailer inventory risk can be viewed as wide but not deep.Due to the high cost of store location,retailers place prime emphasis on inventory turnover and direct product profitabi
25、lity.Inventory turnover is a measure of inventory velocity and is calculated as the ratio of annual sales divided by average inventory.,Although retailers assume a position of risk on a variety of products,their position on any one product is not deep.Risk is spread across more than 30,000 stock kee
26、ping units(SKUs)in a typical supermarket.A discount store offering general merchandise and food often exceeds 25,000 SKUs.A full-line department store may have as many as 50,000 SKUs.,Faced with this width of inventory,retailers attempt to reduce risk by pressing manufacturers and wholesalers to ass
27、ume greater and greater inventory responsibility.Specialty retailers,in contrast to mass merchandisers,normally experience less width of inventory risk as a result of handling narrower assortments;however,they must assume greater risk with respect to depth and duration of inventory holding.,If a bus
28、iness plans to operate at more than one level of the distribution channel,it must be prepared to assume related inventory risk.For example,the food chain that operates a regional warehouse assumes risk related to the wholesaler operation over and above the normal retail operations.,Inventory managem
29、ent,What is inventory management?Inventory management is the integrated process that operates the firms and the value chains inventory policy.The reactive or pull inventory approach uses customer demand to pull product through the distribution channel.In other words,it is the planning which schedule
30、s product movement and allocation through the channel according to forecasted demand and product availability.Thirdly,inventory management is also the policy responding to product and market environments.,New Trend of Inventory Management,Material Requirements Planning(MRP)How does MRP work?MRP deal
31、s specifically with supplying materials and component parts whose demand depends upon the demand for a specific end product.Essentially,MRP begins by determining how much of the final product customers desire,and when they need it.Then MRP breaks down the timing and need for components(all of which
32、could have different lead times)based upon that scheduled end-product need.An MRP system consists of a set of logically related procedures,decision rules,and records,which are designed to translate a master production schedule into time-phased net inventory also re-plans net requirements as a result
33、 of changes.,MRP minimizes inventory to the extent that the master production schedule accurately reflects what is needed to satisfy customer demand.If the production schedule does not match demand,the company will have too much of some items and too little of others.Because the master production sc
34、hedule drives the need for parts,MRP is said to be a pull system.In other words,the production schedule“pulls”components through the system in order to meet manufacturing needs.,Distribution Requirements Planning(DRP),DRP is a more sophisticated planning approach that considers multiple distribution
35、 stages and the characteristics of each stage.DRP is the logical extension of manufacturing requirements planning,although there is one fundamental difference between the two techniques.,MRP is determined by a production schedule that is defined and controlled by the enterprise.On the other hand,DRP
36、 is guided by customer demand,which is not controllable by the enterprise.So,while MRP generally operates in a dependent demand situation,DRP operates in an independent environment where uncertain customer demand determines inventory requirements.The manufacturing requirements planning component coo
37、rdinates the scheduling and integration of materials into finished goods.MRP controls inventory until manufacturing or assembly is completed.DRP then takes coordination responsibility once finished goods are received in the plant warehouse.,New Words and Phrases,distribution channelduration djuE5rei
38、FEn n component kEm5pEunEnt nconsign kEn5sain vinventory turnover 5tE:n7EuvE stock keeping units(SKUs)typical 5tipikEl adjassortment E5sC:tmEnt nsetup cost,分销渠道持续期组成部分把委托给，把交付给库存周转率存货单位典型的分类(生产)准备成本,holding costwithdraw wiT5drC:vMaterial Requirements Planning(MRP)labor-hoursDistribution Requirements
39、 Planning(DRP)plant warehousehybrid 5haibrid nassumption E5sQmpFEn nlead time,持有成本撤退，撤回物料需求计划工时分销需求计划工厂仓库混合假设前置期，提前期,Part III Supplementary ReadingJust-in-time Inventory Management Introduction of Just-in-time,In the early 1970s,Toyota Motor Manufacturing developed a new production strategy that use
40、d little inventory,shortened cycle times,improved quality,and eliminated waste and costs in the supply chain.This just-in-time manufacturing management requires manufacturers to work in concert with suppliers and transportation providers to get required items to the assembly line at the exact time t
41、hey are needed for production.The concept was also adopted by American and European automakers in response to the growing success of their Japanese competitors.The JIT concept then spread to other industries such as computers,and became popular in manufacturing strategies around the world.,JIT Conce
42、pt,Just-In-Time is a philosophy of continuous and forced problem solving.With JIT,supplies and components are“pulled”through a system to arrive where they are needed when they are needed.When good units do not arrive just as needed,a“problem”has been identified.This makes JIT an excellent tool to he
43、lp operations managers add value by driving out waste and unwanted variability.Because there is no excess inventory or excess time in a JIT system,costs from unneeded inventory are eliminated and throughput improved.Consequently,the benefits of JIT are particularly helpful in supporting strategies o
44、f rapid response and low cost.,Advantages of JIT,More inventory turns Because there is less stock on hand,the inventory that is maintained stays for a shorter period of time.Better quality As was mentioned earlier,high quality products must be received with a JIT system,otherwise the entire benefit
45、production process collapses.Less warehouse space needed When there is less inventory,fewer and/or smaller warehouses are required.,Disadvantages of JIT,Risk of stock-outs When firms eliminate inventory,the risk of stocking out can rise.Managers attempt to minimize this occurrence by demanding very
46、high levels of service from their vendors and logistics service providers.Increased purchasing costs Purchasing discounts are generally associated with buying large quantities at one time.Theoretically,JIT means foregoing those price-breaks in favor of obtaining smaller amounts more frequently.Small
47、 channel members may suffer JIT is sometimes criticized as a system that allows strong organizations to shift their inventory to smaller firms in the channel.Environmental issues JIT can lead to higher levels of traffic congestion and air pollution because additional transportation is often required
48、 to maintain customer service levels in the absence of inventory.,Zero Inventory,Just-in-time tactics are still being incorporated in manufacturing to improve quality,drive down inventory investment,and reduce other costs.However,JIT is also established practice in restaurants,where customers expect
49、 it,and a necessity in the produce business,where there is little choice.JIT case in restaurant Pacific Pre-Cut Produce,a$14-million fruit and vegetable processing company in Tracy,California,holds inventory to zero.Buyers are in action in the very early hours of the morning.At 6 a.m.,production cre
50、ws show up.Orders for very specific cuts and mixtures of fruit and vegetable salads and stir-fry ingredients for supermarkets,restaurants,and institutional kitchens pour in from 8 a.m.until 4 p.m.,Shipping begins at 10 p.m.and continues until the last order is filled and loaded at 5 a.m.the next mor
