4 Inventory

Support organizational goals and objectives

→ Logistics is a system and subsystem of enterprise activity (subsystem of supply chain)

Effective and efficient management of purchasing process

→ Effective: How well keeps procurement keeps its promises

→ Efficient: How well uses procurement company resources to keep promises

Management of supply base

→ Selection, development, and maintenance of supply sources

Development of strong relationships with other functional groups

→ Procurement decisions require more cooperation and coordination

→ Lack of cooperation and coordination result in supply shortages, excessing inventory, and increased lead times

Support of operational requirements

→ Focus on satisfying internal customers

→ Buying right product, at right price, from right source, at right specifications, in right quantity, for delivery at right time to right internal customer

Stocks of materials and goods, that are maintained for enterprise activities

Purpose: Satisfy regular demand patterns (trading, service, manufacturing)

Buffers to accommodate that items arrive in one pattern and are used in another pattern

Base stock

Needed to satisfy normal demand during the course of an order cycle

Buffer stock

Held additionally to cycle stock to compensate for uncertainty regarding demand or process time

Pipeline stock

Flow during delivery between various fixed facilities in a logistic system (plant, warehouse, store)

Held for seasonality of demand, projected price increases or potential shortage of product

Associated with retail sale and the belief, that customer purchases are stimulated by inventory that they can see

Key area of decision making in logistic system

Inventory decisions influence other activities (warehousing, transportation, material handling)

Different organisational functions have different expectation

→ Marketing: Inventory can cover entire customer demand to avoid potential stockout situations

→ Finance: Minimization of costs associated with inventory holding

High levels of inventory (overstock)

→ High inventory carrying costs and low (or no) stockout costs Low levels of inventors

→ Low inventory carrying costs and some (high) stockout costs

Inventory holding carries greatest cost after value has been added throughout manufacturing

Storing finished goods is more expensive than maintenance of raw materials and materials in progress

Inventories aren’t of equal value to a firm

→ Different items on stock should be managed in different ways Its important to determine the relative importance of each item

Rule: 80% of sales come from 20% of products

→ 20% of sales come from 80% of products Identify the 20% generating 80% of sales

Helps to reduce storage of very slow moving products

A: Products with highest criticality (20% of products, make 75%-80% of value)

B: Products with moderate criticality (15%-20% of products, make 20% of value)

C: Products with lowest criticality (60%- 65% of products, make 5% of value)

Dead stock (D): Products with no sales (during a 12-month period)

Grouped in warehouse, depending on the frequency of sales

→ Frequently sold product is located closest to the place of issue

→ Less frequently sold product is located further away

→ Occasionally sold product is located at the end

Supplying raw materials, material and parts for production to the manufacturing place, art exact time that they are needed

Reduce inventory levels by reducing safety stock

→ Must also ensure constant availability of goods and business continuity

Consequences of JIT go far beyond inventory management

Requirement for suppliers: Deliver high quality materials to the production line

→ Defective materials result in disruption of production process

→ View supplier as partners (basis of cooperation in supply chain)

Used in supply from manufactures to distributors to retailers

Size and timing of replenishment orders are responsibility of suppliers

Suppliers have access to the distributors / retailers’ sales and inventory data

→ Accomplished by electronic data interchange or the internet

Warehousing: Storage of products (raw materials, parts, good-in-process, finished goods) at and between point of origin and consumptions

Warehousing management: Prepare, maintain, and monitor places where products can be stored for a particular period

→ Inside the company (resources owned by the company)

→ Outside the company (contracted from another company, changing or fixed space for a specified time)

Warehousing and transportation are substitutes for each other

Warehousing can be referred to as “transportation at zero miles per hour”

Bring similar stocks together from different sources

→ Concerns quantity of product

Break larger quantities into smaller quantities

→ Concerns quantity of product

Build variety of different product to resale to customers

→ Concerns assortment of product

Separate products into grades and qualities desired by target markets

→ Concerns assortment of product

Place dedicated to store goods

→ Purpose: Maximize usage of available storage space

Place dedicated for quick movement of products

→ Purpose: Maximize amount of product entering and leaving this place

Special type of distribution centre that is dedicated on e-commerce orders

→ Purpose: Process order, collect ordered product and send delivery in the shortest possible time

Receipt and shipment of product are often completed the same day or overnight without storage

→ Purpose: Send different products orders combined in one direction

Actual, physical movement of goods and people between two points using different tools

Key activity: Successful operation of any supply chain (carries good, as they move along the supply chain)

Influences or is influenced by other types of logistics activities (e.g. inventory management, packaging, (un)loading, location of manufacturing)

Types of transportation

→ One mode: one type of transport

→ Multi- / intermodal: More types of transport used (usually one loading unit used throughout the entire route) "

High speed transport

Expensive (high prices even for small deliveries)

Used for high-value and lower-volume products

Often combined with road transport

Used in need of fast (urgent) delivery

Examples: Car parts / accessories, electronic / electrical equipment, clothing, documents, vehicles for official visits

Most popular in delivering good directly to the recipient

Often combined with other mentioned types of transport (using fulfilment and crossdocking centres)

Susceptible to disruption caused by road traffic / weather conditions

Capacity is limited by road restrictions (permissible weight, size, …)

Examples: Dry freight, foodstuffs, refrigerated product, liquid product, animals / livestock, automobiles, steel

Less flexible than road transport unless the costumer is located on a rail line or has a rail siding

→ More flexible than air, water and pipeline transport

Often combined with road and pipeline transport Superior to air and road transport in case of capacity, but not as good as pipeline or water transport

Tend to carry lower-value and high-volume shipments of bulk-type commodities

→ Transport gained access to manufactured and packed product (higher value) due to intermodal

Examples: Coal, chemicals, farm products, non-metallic minerals

Carries greater volumes than railway and road transport

Inexpensive compared to rail or road transport

Often combined with road, railway, and pipeline transport

Inland water carriers focus on lower-value bulk commodities that can be handled by mechanical means (pumps, scoops, conveyors)

Examples: petroleum, petroleum related products, coal, food / farm products, industrial chemicals, minerals, stone

No vehicle-related disruption (accidents) or weather conditions

Slowest form of transportation

Often combined with railway or road transport to delivery directly to the customer

Pumping stations enable the flow of liquid goods

Capable to transport very large product volumes (ease of flow continuity)