5.1/6.1 Managing Uncertainty Flashcards
Reorder Point (ROP)
inventory level is equal to the total demand during lead time
inventory level when new order must be placed
Lead time (L)
the gap between the time an order is placed and when it is received
when is safety stock not used
when demand is certain
the firms knows exactly when it will run out of inventory and orders when it reaches ROP
Safety inventory (ss)
carried to satisfy demand that exceeds the amount forecasted
when is safety inventory used?
uncertain lead time
uncertain demand
Raising the ss
increases product availability and this the margin captured from sale
increases inventory holding costs
Appropriate level of safety inventory is determined by 2 factors
the uncertainty of both demand and supply
the desired level of product availability
Fill rate
the fraction of product demand or orders that is satisfied from product in inventory
measured over amounts of demand/orders rather than time
Cycle Service Level (CSL)
the fraction of replenishment cycles that end with all the customer demand being met
Aggregation
+reduces the required safety inventory
-increase response time to customer order
-increase transportation costs to customer
square root law
if the number of stock locations decreases by a factor of n, the safety inventory decreases by factor of sqrt(n)
product substitution (2)
manufacturer driven
- manufacturer decided to give customer a different(better) product at same price due to lack of stock of original product
customer driven substation
- customer decides to order a different product because the original one may be out of stock, they choose to pay more or less
Component commonality
ex. IKEA has wooden pins that are used in many products, no need to produce different parts for different products
Postponement
a firm postpones the customisation of products to see which have a higher demand, and produce those more
