http://spam.corp.hp.com/PA_Inventory.htm

Strategic Planning and Modeling (SPaM)

Inventory Management 

Typical Questions

 ← Where should I hold inventory in my supply chain? ← How much safety stock should I keep in raw materials and/or finished goods? ← How should I make trade-offs between inventory and capacity? ← How should I manage raw material and finished goods inventories throughout the product

lifecycle? ← How much capacity should I buy to facilitate a successful product manufacturing ramp? ← What are the advantages and disadvantages of supplier managed inventory?

← How should I take advantage of a flexible supply contract? How much is it worth to me?

Overviews

 

SPaM offering in inventory management [.ppt]

Inventory management fundamentals [.ppt]

Problem-framing guide for supply-demand matching [.ppt]

Key concepts in inventory management

← Uncertainty and supply chain management -- understanding why we keep inventory ← The efficient frontier -- making tradeoffs ← Components of inventory -- decomposing and sizing your inventory ← Product design for supply chain -- managing product design as a key driver of inventory ← Integrated inventory management -- linking to forecasting, planning and capacity

management

Inventory management metrics

← Supply chain metrics and financial performance ← Inventory-driven cost ← Cash-to-cash cycle

Project examples

← Experience story: improving PSG NA order management through better material allocation

  

Resources

 

Excel Tools

← Simplified Rough Cut Inventory Calculator [.xls] -- basic math (including definitions and overview) for calculating WOS inventory targets as a function of the main drivers: average demand and demand variability, average lead time and lead time variability, review period, and target service level.

← Efficient Frontier Calculator [.xls] -- using the basic inventory math to paint a picture of tradeoffs between safety stock and service level.

← Material Wait Time Calculator [.xls] -- more advanced VBA functions to calculate tradeoffs between inventory buffers and wait time for a specified service level (e.g., inventory required to meet 3 day wait time for 90% fill rate)

← Optimal Service Level Calculator [.xls] -- spreadsheet to compare and calculate optimal service level targets based on overage & undercost; also translates between type 1 and type 2 service level measures

← Minimum Order Quantity Simulation [.xls] -- spreadsheet simulation of an actual planning system with inventory targets (for training purposes)

References for further reading

Books

← Nahmias, S.  Production and Operations Analysis, Ch. 4-5.

← Silver, Pyle, Peterson.  Inventory Management and Production Planning and Scheduling .

White Papers

← Inventory target setting primer, 6/05 [.doc] -- guide to different approaches based on problem characteristics

← Effective use of demand uncertainty for making strategy decisions, 5/04 [.pdf] -- characterizing uncertainty and estimating revenue and profit impacts on short-lifecycle products (digital cameras)

← Technical discussion of service levels, 12/02 [.ppt] -- understanding key customer service metrics

← Vendor Managed Inventory in the Retail Supply Chain, 04/99 [.pdf] ← Inventory-Driven Costs - The View Through the Windshield, 1998 [.pdf]

← The supply chain approach to planning and procurement management, 2/97 [.pdf] -- understanding the details behind the inventory target-setting math

Articles

← Hewlett-Packard's Inventory-Driven Cost Analysis , Corporate Executive Board, 2005

← Inventory-Driven Costs by Gianpaolo Callioni, Xavier de Montgros, HBR, 2005

← Effective Collaboration by Gianpaolo Callinoi, Corey Billington, 2001 ← Price Protection in the Personal Computer Industry by Hau Lee, et.al.,

2000 ← Part Tool, Part Process - Inventory Optimization at Hewlett-Packard by

Brian Cargille, Steve Kakouros, and Rob Hall, 1999 ← Hewlett-Packard gains control of inventory and service through design

for localization by Hau Lee, Corey Billington, Brent Carter, 1993

← Managing Supply Chain Inventory: Pitfalls and Opportunities by Hau Lee, Corey Billington, 1992

   

SPaM technical tidbits -- advanced topics

← Shortage cost modeling and inventory planning for ad-driven retail channel inventory, 2/06 [.doc]

← Variability-driven cost calculations, 12/05 [.doc] - methods and Excel template for calculating shortage and excess costs directly (instead of based on an average IDC rate)

← MWT formulations (addendum), 8/05 [.doc] - Synthesis of material wait time analytics, and under which conditions you use various approaches

← MWT formulations, 3/05 [.pdf] - mathematics of material wait time calculations, based on queue modeling approach

← Choosing SL and distribution type, 3/05 [.doc] - guidelines on when to use different service level metrics, and when to use different demand distribution types; equations for type 1 and type 2 service level calcs

← ProdOptim_LP, 11/01 [.doc] – Given a production forecast over time, generates the optimal capacity schedule to minimize the sum of capacity, inventory and shortage costs.

← ProdOptim_DP, 11/01 [.doc] – A dynamic programming formulation for the same problem.

← Multi-period Newsboy: when are single-period solutions optimal? 10/00 [.doc] – conditions under which single period service level optimization approaches are appropriate in multi-period settings.

← Multi-period Newsboy, 9/99 [.doc] - optimizing service level at NPI and EOL based on overage and underage costs

← Capacity and Inventory Planning, 9/99 [.doc] – Queuing model to calculate the mean and standard deviations of manufacturing response times when several different products share the same manufacturing lines.

← Time Dimension in Inventory Calc (w/ addendum), 3/99 [.doc] – Disaggregating monthly demand variability to weekly demand variability using the correlation of demands across weeks.

← Effective Order Leadtime, 1/98 [.doc] – Calculating average order lead times to convert a set of flexible ordering rules into an equivalent leadtime

← Inventory Allocation Algorithm, 11/97 [.doc] – Math for how a VMI supplier should allocate limited supply of product to different customers to equalize their service levels to downstream.

← Inventory Model with Time Correlated Demands, 10/97 [.doc] – Modeling demands that are correlated between time periods. Auto-regressive demands, and how demand parameters for the exposure period can be calculated.

← Yield Effect, 7/97 [.doc] - representing manufacturing yield uncertainty in inventory target setting math

← Value of Inventory Pooling, 10/97 [.doc] – A rough-cut approach to estimate inventory reduction due to risk pooling (e.g., consolidating SKUs or stocking locations)

← Demand variability analysis, 2/96 [.doc] – Explains why we should use the standard deviation of forecast error instead of standard deviation of demand in inventory calculations.

← Single Stockpile Math, 9/95 [.doc] - translating part service levels into product service levels

← Disaggregating Aggregate Demand Variabilities, 10/94 [.doc] – Making use of aggregate demand variability data to have a good estimate of the individual variabilities. Methods of disaggregating variability under two different assumptions.