Inventory Management 2. Periodic Review System

Transcription

1 Inventory Management S Periodic Review System stock level Q 1 Q Q 3 Q 1 Q Q 3 R review 1 review review 3 S - Target stock - ead time R - Review Period Q - Order quantity time 1

2 Periodic Review System At each review place order: current stock + order = target level Set target stock level: S = Demand in (Review period + ead time) +safety stock Periodic Review System - Advantages All stock reviewed periodically - obsolescent items spotted Orders placed at regular intervals smooth spread of admin effort. enables efficient planning Quantity discounts may be available

3 Periodic Review System - Disadvantages arger stocks - not EOQ. ess responsive to changes in demand Variable demand How long review period possible stock-outs Stochastic Demand (Variable Demand) Aims: Minimise stock holding cost Provide given service level Service level no. satisfied customers no. potential customers 95% service level - on 95% of occasions there will be no stock out 3

4 Increasing demand Stochastic Demand 95% Service evel safety stock 5% Demand not met average demand in lead time Probability Stochastic Demand Reorder evel System Reorder Quantity = EOQ Reorder level =Ave. Demand in lead time + safety stock R=µ σ(for 95% service level) In general:r = *µ µ + k* *σ - lead time (weeks) µ - ave demand /week σ - s.d. weekly demand k =1.64 for 95% service level k =.3 for 99% service level 4

5 Stochastic Demand Periodic Review System Target stock = ave demand in Review period + safety stock In general: S = (R+)*µ µ + k* (R+)*σ S - Target stock R - Review period - lead time (weeks) µ -ave demand /week σ - s.d. weekly demand k = % service level k =.3 99% service level Example: Design a Reorder level System for the following:- Weekly Consumption (D) 700 tonnes Cost (c) 75 / tonne ead time () weeks stock holding Cost (h) 15% / tonne p.a. Order cost (S) 3000 (assume 50 working weeks p.a) (H= h*c) DS EOQ = = = 430 H reorder level = D = 700 x = 1400 stock weeks 5

6 Example: Design a Reorder level System for stochastic demand given:- Weekly Consumption (D) Standard deviation Weekly Consumption (σ) Cost (c) ead time () stock holding Cost (h) Order cost (S) 3000 Require a 99% service level (assume 50 working weeks p.a) (H= h*c) 700 tonnes 100 tonnes 75 / tonne weeks 15% / tonne p.a. DS EOQ = = H = 430 reorder level = µ µ + k σ = 700 x +.3 x x 100 = = 178 Example: Design a Reorder level System for stochastic demand stock weeks 6

7 Example: Design a Periodic Review System for stochastic demand with 4 week review period (using previous data) Target stock = Demand in lead time +safety stock (R+)µ µ + k (R+)σ =(4 +) x (4+)x 100 = = 4768 Design a Periodic Review System for stochastic demand with 4 week review period Q Q Q 3 1 Q 1 Q Q 3 review 1 review review 3 Review 1 order = = 3568 Review order = = 668 time 7

8 Pareto Analysis Some companies have 1000 s stock lines Which stock control system to use for each product? Use Pareto Analysis to identify lines needing careful control Rank lines by value of turnover Category A - high turnover, typically 10-0% lines account for 70-80% value: use RO system Category B Middle value turnover - use PR short reviews Category C low value turnover - use PR long reviews Pareto Analysis Item No. Annual Usage Unit Cost Value Of Usage

9 9 Pareto Analysis Cum % tot Cum. Value Unit Annual Item No. Rank Value value Of Usage Cost Usage 6.79% % % % % % % % % % % % % % % % % % % % Pareto Analysis Category A Category B Category C