Effect of Demand on inventory- Supply Chain
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Transcript of Effect of Demand on inventory- Supply Chain
SHRI RAMDEOBABA COLLEGE OF ENGINEERING & MANAGEMENT
INDUSTRIAL ENGG. DEPT.
SUPPLY CHAIN MANAGEMENT
ASSIGNMENT 2
-Faizan Ali Sayyed 33
PROBLEM STATEMENT
How does uncertainty in demand affects inventory level?
What is inventory control? the supervision of supply, storage and
accessibility of items in order to ensure an adequate supply without excessive oversupply\
Inventories are called as deadinvestments
Uncertainty is caused due to… Supply-
unreliability of vendors-suppliers
Process-internal processes
Demand-uncertainty in demand
What is demand uncertainty difficulty in accurately projecting
customer demand in the future
it makes inventory hard to control and manage
can vary from day to day, week to week, or seasonall
What is lead time? the latency between the initiation and
execution of a process time between the initiation of a process and
its completion
neither to high nor to low level of inventory is beneficial
there is no cut- and – dried formula to estimate or predict demand
there is no thumb rule to forecast demand
thrilling pressure to cut down there total logistical cost especially inventory
If company holds high level inventory, it may be capable enough to meet
unforeseen demand and generate additional sales, volumes due to advantages of impulse buying tendencies,
but at the same time it leads to undue: Carrying/ holding charges in form of taxes,
insurance, storage facilities, depreciation. Involvement of working capital which ultimately
affects the overall profitability of the firm.
If the company holds too little inventory,
Too frequent ordering
Loss of Quantity discount
Higher transportation charges
Likely shortage in future
Inventory is essential for smooth functioning of any organization mainly due to geographical specialization , periodic variation and for balancing of supply and demand.
Given limited resources firms must often choose among alternative investment decisions example between focusing on reducing demand fluctuations, lead times or lead time fluctuations.
Traditionally proper management of inventory levels to issues need proper attention and analysis:
1 .Order quantity(How much to order of each material with either outside supplier or production department within organization. It is also called LOT Sizes or Economic Order Quantity,EOQ)
2. Order Points (When to place the orders. It is also called Reorder Points,RP)
Techniques like JIT, MRP , DRP etc to cut down there total logistical cost
EDI, DND, ERP, Bar coding, intranet,
extranet, internet to reduce inventory level without stock out situation
SummaryInventory levels are affected by customer service expectations, demand uncertainty, and , the flexibility of the supply chain
For products with high uncertainty in demand , a more responsive supply chain and larger buffer inventories may be needed to meet a desired customer service level
Firms with high customer service levels may gain a competitive advantage
Those who understand their demand recognize stock out costs and carry appropriate levels of inventory are ultimately better able to effectively manage inventory and provide the desired service level to customers.
Thank you
Thank you