Sesi 2 25 Januari

Inventory is the raw materials, component parts, work-in-process,

or finished products that are held at a location in the supply chain
Macro level: inventory is one of the biggest corporate assets.
Sales growth: right inventory at the right place at the right time
Cost reduction: less money tied up in inventory, inventory
management, obsolescence: Higher Profit
Inventory is cost.
Cost of not having it.
Cost of going to the grocery or gas station (time, money), cost of
drawing money
Cost of holding and storing, lost interest.
Price discounts.
How much you consume.
Some safety against uncertainty.
Physical holding costs.
Opportunity cost of inventory: foregone return on the funds
invested.
Operational costs: Delay in detection of quality problems. Delay
the introduction of new products.
Benefits of inventory
To summarize, we build and keep inventory in order to
match supply and demand in the most cost effective way.
Hedge against uncertain demand & supply
Economize on ordering costs
Smoothing
Functions of Inventory:

To meet anticipated demand, etc

Goals of Inventory Management
Reduce Cost, Improve Service
Inventory Levels
Investment

Financial
^
Operational needs

Inventory-Sales Ratio (US. Manufacturers):

1992, 2000,,,
Why Is Inventory Required?
Uncertainty in customer demand
Uncertainty in supplies
Deliver lead times
Incentives for larger Shipments
Demand Forecast?
Supply Chain Factors in Inventory Policy
-

Estimation of customer demand

Replenishment lead time
The number of different products being considered
The length of the planning horizon
Costs: Oder cost: product cost & Transportation cost.
Inventory holding cost, or inventory carrying cost: State
taxes, property taxes, and insurance on inventories.
Maintenance costs. Obsolescence cost. Opportunity costs.
- Service Level Requirements.
SKU??? Stock Keeping Unit

Single stage optimization:

Supplier -> Inventory location <-> inventory location ->
Customer
Supplier -> (inventory location -> inventory location) -> Customer
Set up cost. Holding Cost.
EOQ: Economic Order Quantity -> Important.
Sensitivity Analysis
Demand Uncertainty
The forecast is always wrong. Its difficult to match supply and
demand.
The longer the forecast horizon, the worse the forecast. It is even
more difficult if one needs to predict customer demand for a long
period of time.
Aggregate forecasts are more accurate. More difficult to predict
customer demand for individual SKUs. Much easier to predict
demand across all SKUs within one product family -> Risk Pooling
Concept
Aggregate: forecast should about product demand, not the parts.
Single Period Models
Short lifecycle products: One ordering opportunity only. Order
quantity to be decided before demand occurs.
Order Quantity > Demand => Dispose excess inventory
Order Quantity < Demand => Lose sales/profits
Using Historical data. Identify a variety of demand scenarios.
Determine probability each of these scenarios will occur, etc
Salvage value: Any swimsuit not sold during the summer season
is sold to a discount store for $20.
Weighted average of profit scenarios

11, 11, 27, 23, 18. 10

Production forecast untuk high price or high tech products seperti
pesawat, kontraknya saja bisa 6 bulan. Ada jaminan bank untuk
keterlambatan bayar, dst.
Order quantity that Maximizes expected profit.
Kesimpulan:
Relationship Between Optimal Quantity and Average Demand.
Marginal profit/unit = Selling Price Variable cost
Marginal cost/unit = Variable Ordering (or, production) cost
salvage value
If Marginal Profit > Marginal Cost => Optimal Quantity > Average
Demand
If Marginal Profit < Marginal Cost => Optimal Quantity > Average
Demand
Marginal Profit (case) = 45
Marginal Cost (case) = 60
In this case, Marginal Cost > Marginal Profit => optimal
production quantity < average demand.
*istirahat*
Manufacturer Initial Inventory = 10,000 ; 5,000
Maximum point is in 12,000
If we produce, the most we can make on average is a profit of
$375,000 (10,000 unit initial inventory). Max initial potential is in
8,500
(s, S) policy or (min, max) policy PAGE 36 - 41
Multiple Order Opportunities: Biasanya dibantu oleh
system IT
Two policies: Continuous review policy & Periodic review policy

Bila grafik quantity sudah sampai titik hamper nol, ada namanya
reorder point. Lead time adalah dari Reorder point menuju stok 0.
Q tertinggi adalah optimum order quantity.

Safety Stok harus kita jaga. Sudah ada standard safety factor x
lead time.
Reorder time adalah average demand + safety stock
AVG D = L x AVG
Safety Stock = 2 x STD x L^1/2
Ketika masuk reorder time, maka harus pesan lagi sebanyak Q.
Service Level & Safety Factor, z
Servi
ce
Level
Z

90
%

91
%

92
%

93
%

94
%

95
%

96
%

97
%

98
%

99
%

1.2
9

1.3
4

1.4
1

1.4
8

1.5
6

1.6
5

1.7
5

1.8
8

2.0
5

2.3 3.08
3

Fixed ordering cost = 4,500

Cost of a TV set to the distributor =

99.9
%

.
R = AVG x AVGL + z (AVGLxSTD^2 + AVG^2 x STL^2)^1/2
Trade-Offs
Everything else being equal:.
Retail Strategy:
. ..
Everything else being equal, service level will be higher for
products with: high profit margin, high volume, low variability,
short lead time
Safety Stock dapat di reduce.
Setelah lead time diperhitungkan, dapat terjadi penghematan
lebih lanjut.
Critical Points
The higher the coefficient of variation, the greater the benefit
from risk pooling. Cara risk pooling selalu akan menurunkan
variansi
Risk pooling benefits are higher in situations where demands
observed at warehouses are negatively correlated.
Reallocation of items from one market to another easily
accomplished in centralized systems. Not possible to do in
decentralized systems where they serve different markets
Centralized vs Decentralized systems
Safety Stock: lower with centralization
Service level: higher service level for the same inventory
investment with centralization

Overhead costs: higher in decentralized system

Customer lead time: response times lower in the decentralized
system
Transportation costs: not clear. Consider outbound and inbound
costs.
Managing inventory in the supply chain
Echelons and echelon inventory: ada beberapa tingkatan dalam
inventory.
R reorder point ada rumusnya. Pangkat e
R = L^e x AVG + z x ST x L^e^1/2
Inventory Turnover Ratio = Annual Sales / Average Inventory Level
Supply Chain Manager: Bagaimana inventory turun serendahrendahnya namun service level tetap dipertahankan.