Determining the Appropriate Level of Safety Inventory in a Supply Chain

We now discuss the relationship between safety inventory and the CSL and fr. In this section, we restrict our attention to the continuous review policy. The periodic review policy is discussed in detail in Section 12.6. The continuous review policy consists of a lot size Q ordered when the inventory on hand declines to

Impact of Supply Uncertainty on Safety Inventory in a Supply Chain

In our discussion to this point, we have focused on situations with demand uncertainty in the form of a forecast error. In many practical situations, supply uncertainty also plays a significant role. The impact of supply uncertainty is well illustrated by the impact of the grounding of MSC Napoli on the south coast of

Impact of Aggregation on Safety Inventory in a Supply Chain

In practice, supply chains have varying degrees of inventory aggregation. For example, Barnes & Noble sells books from retail stores with inventory geographically distributed across the country. Amazon, in contrast, ships all its books from a few facilities. Seven-Eleven Japan has many small convenience stores densely distributed across Japan. In contrast, supermarkets tend to

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Impact of Replenishment Policies on Safety Inventory in a Supply Chain

In this section, we describe the evaluation of safety inventories for both continuous and periodic- review replenishment policies. We highlight the fact that periodic review policies require more safety inventory than continuous review policies for the same level of product availability. To simplify the discussion, we focus on the CSL as the measure of

Managing Safety Inventory in a Multiechelon Supply Chain

In our discussion so far, we have assumed that each stage of the supply chain has a well-defined demand and supply distribution that it uses to set its safety inventory levels. In practice, this is not true for multiechelon supply chains. Consider a simple multiechelon supply chain with a sup­plier feeding a retailer that

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The Role of IT in Inventory Management

Besides the basics of formalizing inventory replenishment procedures for thousands of SKUs, the two most significant contributions of IT systems can be improved inventory visibility and better coordination in the supply chain. An excellent example of the benefits of improved inventory visibility is Nordstrom, a department store chain in the United States. The company

Estimating and Managing Safety Inventory in Practice

Account for the fact that supply chain demand is lumpy. In practice, a manufacturer or distributor does not order one unit at a time but instead often orders in a large lot. Thus, demand observed by different stages of the supply chain tends to be lumpy. Lumpiness adds to the variability of demand. For

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Managing Inventories at ALKO Inc.

ALKO began in 1943 in a garage workshop set up by John Williams at his Cleveland home. John had always enjoyed tinkering, and in February 1948 he obtained a patent for one of his designs for lighting fixtures. He decided to produce it in his workshop and tried market­ing it in the Cleveland area.

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Should Packing Be Postponed to the DC?

Foxcompany (Fox) Co. Ltd. was founded in 1974 in Taiwan as a manufacturer of electrical components for computers. With strong research and development efforts, by 2011, it had accumulated more than 25,000 patents granted worldwide. Fox is now one of the world’s 500 biggest companies, according to Fortune magazine. Its biggest production operation is

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The Importance of the Level of Product Availability in a Supply Chain

The level of product availability is measured using the cycle service level or the fill rate, which are metrics for the amount of customer demand satisfied from available inventory. The level of product availability, also referred to as the customer service level, is one of the primary mea­sures of a supply chain’s responsiveness. A

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Factors Affecting Optimal Level of Product Availability in a Supply Chain

To understand the factors that influence the optimal level of product availability, consider L. L. Bean, a large mail-order company that sells apparel. One of the products L. L. Bean sells is ski jackets, for which the selling season is from November to February. The buyer at L. L. Bean cur­rently purchases the entire

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Managerial Levers to Improve Supply Chain Profitability

Having identified the factors that influence the optimal level of product availability, we now focus on actions a manager can take to improve supply chain profitability. We have shown in Section 13.2 that the costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability. Two obvious

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Setting Product Availability for Multiple Products Under Capacity Constraints in a Supply Chain

In our discussion up to this point, we have assumed that a firm can set its desired level of product availability, and no constraints interfere with this choice. A common scenario in which this assumption fails occurs when the desired level of product availability results in an order size that exceeds the available capacity

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Setting Optimal Levels of Product Availability in a Supply Chain in Practice

Beware of preset levels of availability. Often, companies have a preset target of prod­uct availability without any justification. In such a situation, managers should probe the rationale for the targeted level of product availability. A manager can provide significant value by adjust­ing the targeted level of product availability to one that maximizes profits. Use

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The Need for Speed at Winner Apparel

Tiffany Chen was concerned about Winner Apparel’s sales results from the previous season. For some prod­ucts, the company had to sell about a third of the sea­sonal purchase at sharply discounted prices. For other products, the company ran out of stock well before the end of the season. Tiffany wanted to improve the match­ing

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The Role of Transportation in a Supply Chain

Transportation refers to the movement of product from one location to another as it makes its way from the beginning of a supply chain to the customer. Transportation is an important supply chain driver because products are rarely produced and consumed in the same location. Transpor­tation is a significant component of the costs incurred

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Modes of Transportation and Their Performance Characteristics in a Supply Chain

Supply chains use a combination of the following modes of transportation: Air Package carriers Truck Rail Water Pipeline Intermodal Commercial freight activity in the United States by mode in 2002, along with the value added by each mode to GDP in 2009, are summarized in Table 14-1. Before discussing the various modes, it is

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Supply Chain Transportation Infrastructure and Policies

Roads, seaports, airports, rail, and canals are some of the major infrastructural elements that exist along nodes and links of a transportation network. In almost all countries, the government has either taken full responsibility or played a significant role in building and managing these infra­structure elements. Improved infrastructure has played a significant role in

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Design Options for a Supply Chain Transportation Network

The design of a transportation network affects the performance of a supply chain by establishing the infrastructure within which operational transportation decisions regarding scheduling and routing are made. A well-designed transportation network allows a supply chain to achieve the desired degree of responsiveness at a low cost. Three basic questions need to be considered

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Trade-Offs in Supply Chain Transportation Design

All transportation decisions made by shippers in a supply chain network must take into account their impact on inventory costs, facility and processing costs, the cost of coordinating operations, and the level of responsiveness provided to customers. For example, Amazon’s use of package carriers to deliver products to customers increases transportation cost but allows

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