Chapter 20 Supply Chain

Customer order decoupling point

A point where inventory is positioned to allow processes or entities in the supply chain to operate independently

Single-period model

Used when making a one-time purchase of an item

Fixed-order quantity model

Used when wanting to maintain an item “in-stock,” and when we resupply the item, a certain number of units must be ordered each time

Fixed-time period model

Used when the item should be in-stock and ready to use

Inventory

All the money that the system has invested in purchasing things it intend to sell

Inventory system

Set of policies and control that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be

Manufacturing inventory

Items that contribute to or become part of a firm’s product output. Typically classified into raw materials, finished products, component parts, supplies, and work-in-process

In-transit

Being moved in the system

All firms keep a supply of inventory for the following reasons:

1. To maintain independence of operations

2. To meet variation in product demand

3. To allow flexibility in production scheduling

4. To provide a safeguard for variation in raw material delivery time

5. To take advantage of of economic purchase order size

6. Many other domain-specific reasons

In making any decision that affects inventory size, the following costs must be considered:

• Holding costs

• Setup costs

• Ordering costs

• Shortage costs

Holding costs

Includes the costs for storage facilities, handling, instance, depreciation, taxes, etc.

Setup costs

Obtaining the necessary materials, arranging specific equipment setups, filling out the required papers, etc

Ordering costs

Include all the details, such as counting items and calculating order quantities

Single-period problem

Answers the question of how much to order when an item is purchased only one time and it is expected that it will be used and then not reordered

Fixed-order quantity model (Q-model)

An inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory

Fixed-time period model (P-model)

An inventory control model that specifies inventory is ordered at the end of a predetermined time period.

Safety stock

The amount of inventory carried in addition to the expected demand

Methods and Data Pattern of Tactical Forecasting

Methods: Simple moving average, weighted moving average, simple exponential smoothing

Data Pattern: No trend or seasonality

Methods and Data patterns of strategic forecasting:

Methods: Exponential smoothing with trend and linear regression

Data Patterns: Trend and seasonality