[completed] 11과 Indepenced Demand Ordering Systems

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Introduction

another important question is when to place a replacement order. the problem is how to balance the costs of carrying extra inventory against the conts of stockout.no matter what the items are, some rules for reordering are needed and can be as siple as orderwhen needed, irder every month, or order when stock falls to a predetermined level.in industry there are many inventories that involve a large invenstment and have high stockout costs. controlling these inventories requires effective reorder systmes. three basic systemsn are used to determine when to order.

• order point system - independent demand
• periodic review systme - independent demand
• material requirements planning - dependent demand

Order Point System

when the quantity of an item on hand in inventory falls to a predetermined leve, called an order point, an order is placed. the quantity ordered is usually precalcaulated and based on economic order quantity concepts.

using this system, an order must be placed when there is enough stock on hand to satisfy demand from the tiem the order is placed until the new stock arrives(called the lead time).

suppose that for a particular item the average demand is 100 units a week and the lead time is four weeks. if an order is placed when there are 400 units on hand, on the average there will be enough stock on hand to last until the new stock arrives.

however, demand during any one lead time period probably vaires from the average. statistically, half the tiem the deamnd is greater than average, and ther is a stock out.

if it is necessary to provide some protection against a stockout, safety stock can be added. the item ie ordered when the quantity on hand falls to a level qual to the demand during the lead time plus the safety stock.

Order point = Demand During the lead time + safety stock.

it is important to note that it is the demand duing the lead time that is important.

the only tiem a stock out is possible is during the lead time.

if demand during the lead time is greater than expected, ther will be a stockout unless sufficient safety stock is carried.

with order point system,

order quantities are usually fixed

the order point is determined by the average demand during the leadtime. if the average demand or the lead time changes and there is no corresponding change in the order point, effectively there has been a change in safety stock.

the intervals between replenishment are not constant but vary depending on the actual demand during the reorder cycle.

the average inventory for a period is equal to the opening inventory plu the ending inventory, divided by 2.

determining the order point depends on the demand during the lead time and the safety stock required.

Determining safety Stock

safety stock is intended to protect against uncertainty in supply and demand.

uncertainty may occur in two ways: quantity uncertainity and timing uncertainity.

quantity uncertainty occurs when the amount of supply or demand varies.

timing uncertainity occurs when the time of receipt of supply or demand differs from that expected.

there are two ways to protect against uncertainity: carry extra stock , called safety stock or order early called safety lead time.both safety stock and safety lead time result in extra inventory but the methods of calculation are different.

the safety stock required depends on the following;

1. variability of demand during the lead time the higher the variability the greater the need for safety stock.
2. frequency of reorder. if order are placed frequently, changed to the demand or variability of the demand will be detected earlier.
3. service level desired
4. length of the lead time, the longer the lead time, the more safety stock has to be carried to provide a specified service level. this is one reason it is important to reduce lead times as much as possible.

 

• variation in demamd during lead time
  • assigning order quantity to two different item as average means that there will be on stock out each item every weeks. if the same service level is to be provided, some method of estimating the random-ness of item demand is needed.
• vairation in demand about the average
  • normal distribution
  • average or mean
  • dispersion 
    • the variation or dispersion of actual demand about the average refers to how closely the individual values cluster around the meand or average. it can be measured in several ways
      • as a range of the maximum  minus the minimum value
      • as the mean absoulte deviation, which is a measure of the average forecast error
      • as a standard deviation
• standard deveation
  •  is stactical value that measures how closely the individual value cluster about the average. the standard deviation is calculated as follows;
    • calculate the deviation for each period by substracting the actual demand form the forecast demand.
    • square each deviation
    • add the aquare of the deviation
    • divide the value in step 3 by the number of period s to determine the average of the squared deviations.
• determining the safety stock and order point
  • one property of the normal curve is that it is sysmmetrical about the average. this means that half the time the actual demand is less than the average and half the time it is greater. 
  • safety stocks are needed to cover only thoese periods in which the demand during the lead time is greater than the average. thus, a service level of 50% can be attained with no safety stock. if a higher service level is needed, safety stock must be provided to protect against those times when the actual demand is greater than the average.
  • the service level is a statement of the percentage of time ther is no stockout.  but what exactly is meant by supplying the customer 84% of the time? it means being able to supply when a stockout is possible,  and a stockout is possible only during the time interval between when an order is to be placed and when the replenishment is received. if an order is placed 100 times a year, ther are 100 chances of a stockout. with safety stock equivalent to one standard deviation, on the average one would expect no stockouts about 84 of the 100 times.
  • safety factor
    • the service level is directly related to the number of standard deviations provided as safety stock and is usually called the safety factor.
    • note that the service level is the percentage of order cycles without a stockout.

 

Determining Service Levels

a company wants to carry enough safety stock on hand so the cost of carrying the extra inventory plus the cost of stockouts is a minimum. stockout cost money for the following reasons;

• backorder costs
• lost sales
• lost customers

the cost of a stockout vaires depending on the item, the market served, the customer, and competition.

the only time it is possible for a stockout to occur is when stock is running low, and this happens everytime an order is to be placed. therefore, the chances of a stockout are directly proportional to the frequency of reorder.

the more often stock is reordered, the more often there is a chance of a stockout.

note also that when the order quantity is increased, exposure to stockout decreases.

the safety stock needed decreases, but because of the larger order quantity, the average inventory increases.

when a company pursues a lean production approach, the tactics to reduce average inventory tends to drive the order quantity down significantly as a result of reducing order cost. while this will often increase the exposure to stockout by a large number, other tactics are used to minimize the risks associated with those stockouts.

Different Forecast and Lead-time intervals

usually, there are many items in an inventory, each with different lead tims. records of actual demand and forecast are normally made on a weekly or monthly basis for all items regardless of what the individual lead times are.it is almost impossible measure the variation in deamnd about the average for each of the leadtime.some method of adjusting standard deviation for the different time intervals is needed.

as the lead time increases, the standard deviation increases. however it will not increase in direct proportion to the increase in time

as the time interval increases, there is a smoothing or canceling effect, and the longer the time interval, the more smoothing takes place.

the folloing adjustment can be made to the standard deviation or the safety stock to compensate for difference between lead time interval and forecast interval.

determining when the order point is reached

there must be some method to show when the quantity of an item on hand has reached the order point. in practice, there are many systems, but they are all inclined to be variation or extension of three basic systmes.

• two-bin systems
  • a quantity of an item equal to the order point quantity is set aside, frequenly in a seperate or second bin, and not touched until all the main stock is used up. when this stock needs to be used, the production control or purchasing department is notified and a replenishment order is placed.
  • the two-bin system is a simple way of keeping control of C items. becase they are low value. however, they do need to be managed and someone should be assigned to ensure that when the reserve stock is reached an roder must be placed. when it is out of stock, a c item vecomes an a items.
• kandans
  • is a simple system that signals the need for more product. it is normally consists of a card or ticket that has information on the item and the quantity to be produced. it avoids the need for formal record keeping and like the two-bin systme, makes a visual signal of the need for more product when the inventory falls below a preset level. it is used to replenish all items ans not just low-value c times.
• perpetual inventory record systme
  • is a continual account of inventory transactions as they occur. at any instant, it holds an up-to-date record of transactions. it contains the balance on hand but it may also contin the quantity on order but not received, the quantity allocated but not issued, and the available balance. th

Period Review Systme

the periodic review system makes the timing of each order a regular interval.

using the periodic review system, the quantity on hand of a particular items is determined at specified, fixed-time intervals and an order is placed. 

using the periodic review system, the quantity on hand of a particular item is determined at specified, fixed-tiem intervals and an order is placed.

thus the reviw period is fixed, and the order quantity is allowed to vary. the quantity on hand plus the quantity ordered must be sufficient to last until the next shipment is received. 

that is the quantity on hand plus the quantity orderd must equal the sum of the demand during the lead time plus the demand during the review period plus the safety stock.

target-level or maximum-level inventory

the quantity equal to the demand during the lead time plus the demand during the review period plus safety stock is called the target-level or maximum- level inventory.

Distribution Inventory

distribution inventory included all the finished goods held anywhere in the distribution systme. the purpose of holding inventory in distribution centers is to improve customer service by locating stock near the customer and to reduce transportation costs by allowing the manufacturer to ship full loads rather than partial loads over long distances.

the objectice of distribution inventory management are to provide the required level of customer service, to minimize the costs of transportation and handling, and to be ablr to interact with the factory to minimize scheduling problems.

distribution system vary considerably, but in general they have a central supply facility that is supported by a factory, a number of distribution centers, and finally suttomers.

unless a firm delivers directly from factory to custmer, demand on the factory is created by central supply.

in turn, demand on central supply is created by the distrbution centers. although the demand from sutomers may be relatively uniform, the demand on central supply is not, because it is dependent on when the distribution centers place replenishment orders. in turn the demand on the factory depends on when central supply places orders.

the distribution system is the factory's customer, and the way the distribution system interfaces with the factory has a significant effect on the efficiency of factory operations.

distribution inventory management systems can be classified into decentralized, centralized, and distribution requirements plannig.

	factory
	central supply
distribution center a	distribution center b	distribution center c
	customers

• decentralized system
  • each distribution center first determines what it needs and when and then place orders to central supply. each center order on its own to service local demand without regard for the needs of other centers, available inventory at central supply or the production schedule of the factory.
  • the advantage of decentralized system is that each center can operate on its own and thus reduce communication and coordination expence. the disadvantage is the lack of coordination and the effect this may have on overall inventories, customer servie and factory schedule.
• centralized system
  • all forecasting and order decisions are made centrally. stock is pushed out into the system from central supply, different ordering systems can be used, also attempt to balance the availabiltiy inventory with the needs of each distribution center.
  • the advantage of these system is the coordination between factory , central supply, and distribution center needs. the disadvantage is the inability to react to local demand, thus lowering the level of service,
• distribution requirements planning(DRP)
  • is a system that forecasts when the various demands will be made by the system on the central center.
  • this gives central supply and the factory the opportunity to plan for the goods that will actually be needed and when.it is able both to respond to local customer demand and coordinate planning and control.
  • the system translate the logic of material requirements planning to the distribution systme. planned order releases from the various distribution centers become the input to the material plan of central supply. the planned order releases from central supplyy  become the forecast of demand fro the factory master production schedule.

key terms

average or mean

centralized system

decentralized system

dispersion

distribution requitements planning (DRP)

kanban system

Lead Time

Normal curve or bell curve

Order point

permanent or static information 

perpetual inventory record

safety factor

safegy lead time

safety stock

standard deviation

target-level or maximum-level inventory

two-bin systme

vaiable or dynamic information