1 / 45

Modeling Inventory (Deterministic View)

Modeling Inventory (Deterministic View). John H. Vande Vate Spring 2006. Types of Inventory. Deterministic Inventory Pipeline Inventory: Inventory in transit Cycle Inventory: Goods accumulating for transit Goods delivered and waiting for processing Stochastic Inventory (later).

Download Presentation

Modeling Inventory (Deterministic View)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Modeling Inventory(Deterministic View) John H. Vande Vate Spring 2006 1

  2. Types of Inventory • Deterministic Inventory • Pipeline Inventory: Inventory in transit • Cycle Inventory: • Goods accumulating for transit • Goods delivered and waiting for processing • Stochastic Inventory (later) 2

  3. Illustrative Example • Develop a distribution strategy to minimize inventory and transportation costs • Purpose: • Outline issues covered in outbound logistics • The importance of transportation in the supply chain • Illustrate costs and investments • Always do a quick analysis first, then refine it. 3

  4. Overview • Products: • Computers: CPU, Monitor, Keyboard • Televisions: TV and Console • Distribution Centers • 100 across the US • Sell 10 TVs and 10 computers per day • 250 days/year 4

  5. Components We assume weight not cube determines vehicle capacity 5

  6. Initial Strategies to Consider • All direct shipments in full truckloads • Consolidate in Indianapolis. All shipments in full truckloads 6

  7. Simplification • Shipments on the order of 1,000 miles Distances 7

  8. What Costs? • Transportation • Pipeline inventory – inventory in transit • Inventory at Plants • Inventory at DCs • Handling • … 8

  9. Direct:Transportation Cost • How many shipments/year? • Green Bay • Indianapolis • Denver • Total 100 stores * Annual Store Demand /Items to fill a truck Items to fill a truck = Cap. of truck/Weight of Item • Green Bay • Indianapolis • Denver 100*2,500/6,000 = 41.67 100*5,000/3,000 =166.67 100*2,500/1,000 = 250 ~ 460 30,000/5 = 6,000 30,000/10 = 3,000 30,000/30 = 1,000 9

  10. What Costs? • Direct • Transportation ~ • $1/mile*1,000 miles/trip*460 trips/year = $460,000/year • Pipeline inventory • Inventory at Plants • Inventory at DCs • Handling • … 10

  11. Pipeline Inventory • How long are goods in transit? • 1,000 miles at 50+ miles per hour • 2 days + • How much inventory is in transit on average? • Imagine we send the items one-at-a-time • How many items in the pipe? 11

  12. Pipeline Inventory • One Day worth of sales at a store • 10 TVs at $400+$100 each = $5,000 • 10 Computers at $300+$400 = $7,000 • Total $12,000 per day per store • Two days of system-wide sales: • 2 days * $12,000/store/day * 100 stores = $2,400,000 • Carrying cost 15% of $2,400,000 = $360,000 12

  13. What Costs? • Direct • Transportation ~ • $1/mile*1,000 miles/trip*460 trips/year = $460,000/year • Pipeline inventory • $2,400,000 in capital • $360,000 in annual carrying costs • Inventory at Plants • Inventory at DCs • Handling • … 13

  14. Inventory at the Plants • Two Extremes • Simultaneous shipments • Staggered shipments 14

  15. Simultaneous Shipments • A truckload of computers from Green Bay has 6,000 computers in it • A DC sells 2,500 per year • So we only need to replenish the DCs every 6,000/2,500 = 2.4 years 15

  16. Inventory at Green Bay • Simultaneous Shipments 600,000 2.4 years 16

  17. Simultaneous shipments • Green Bay ships once every 2.4 years • Inventory is 1.2 years demand or 300,000 CPUs • Inventory value is $90,000,000 • Inventory carrying cost is $13,500,000 • Denver ships 2.5 times per year • Inventory is 20% of annual demand or 50,000 Consoles • Inventory value is $5,000,000 • Inventory carrying cost is $750,000 • Indianapolis ships 1.6 times per year • Inventory is 500,000/3.2 or about 150,000 items • Inventory value is $60,000,000 • Inventory carrying cost is $9,000,000 17

  18. Why Not? • What are problems with simultaneous shipments? • When are simultaneous shipments likely? • What alternatives? 18

  19. Inventory at Green Bay • Staggered Shipments 6,000 ~6 days 19

  20. What Costs? • Inventory at Plants • Simultaneous Shipments Capital Carrying Cost • Green Bay $90 million $13.5 million • Denver $ 5 million $ .75 million • Indianapolis $60 million $ 9.0 million • Total $155 million $23.25 million • Staggered Shipments (divide by 100!) Capital Carrying Cost • Green Bay $900 K $135 K • Denver $ 50 K $ 7.5 K • Indianapolis $600 K $ 90 K • Total $1.55 million $232.5 K 20

  21. What Costs? • Direct • Transportation ~ • $1/mile*1,000 miles/trip*460 trips/year = $460,000/year • Pipeline inventory • $2,400,000 in capital • $360,000 in annual carrying costs • Inventory at Plants – Staggered Shipments • $1.55 million in capital • $232.5 K in annual carrying costs • Inventory at DCs • Handling • … 21

  22. DC Inventory from Green Bay 6,000 ~2.4 years 22

  23. Inventory at DCs • At the DC’s? • ½ truckload or 3,000 CPUs at $300 each: $900,000 • ½ truckload or 1,500 Monitors at $400 each: $600,000 • ½ truckload or 500 Consoles at $100 each: $ 50,000 $1,550,000 Carrying cost: 15% of $1,550,000 or $232,500 Total Carrying cost at the DCs: $23,250,000! 23

  24. What Costs? • Direct • Transportation ~ • $1/mile*1,000 miles/trip*460 trips/year = $460,000/year • Pipeline inventory • $2,400,000 in capital • $360,000 in annual carrying costs • Inventory at Plants – Staggered Shipments • $1.55 million in capital • $232.5 K in annual carrying costs • Inventory at DCs • $155 million in capital • $23.25 million in carrying costs • Handling • … 24

  25. Total Cost & Capital Direct Costs • Transportation Costs: $ 460,000 • Pipeline Inventory $ 360,000 • Inventory Costs at Plants: $ 232,500 • Inventory Costs at DCs: $ 23,250,000 Total: $ 24,302,500! Capital Required: • Pipeline Inventory $ 2,400,000 • Inventory Costs at Plants: $ 1,550,000 • Inventory Costs at DCs: $ 155,000,000 Total: $ 158,950,000! 25

  26. Consolidation • Strategy 2: Assemble Products in Indianapolis and distribute by truckload from there • What will happen to costs? • Transportation • Pipeline • At plants • At Indianapolis Warehouse/Cross Dock • At DCs 26

  27. Via Indianapolis Facts 27

  28. What Costs? • Transportation • To Indianapolis • From Indianapolis to DCs • Pipeline inventory • To Indianapolis • From Indianapolis to DCs • Inventory at Plants • Inventory at Indianapolis Cross Dock • Inventory at DCs • Handling • … 28

  29. Indirect: Transportation • To Indianapolis • Green Bay 400 miles* 42 trips = 16,800 • Indianapolis 0 miles*167 trips = ~ 0 • Denver 1,100 miles*250 trips = 275,000 • Total $291,800 • From Indianapolis to DCs • Same as total transport before, we are moving the same goods the same distance (roughly 1,000 miles to each DC) $460,000 29

  30. What Costs? • Transportation • To Indianapolis $291,800 • From Indianapolis to DCs $460,000 • Pipeline inventory • To Indianapolis • From Indianapolis to DCs • Inventory at Plants • Inventory at Indianapolis Cross Dock • Inventory at DCs • Handling • … 30

  31. Pipeline Inventory • To Indianapolis • From Green Bay 400 miles ~ 1 day • 1,000 per day at $300 each ~ $300,000 capital • 15% of $300,000 is $45,000 carrying cost • From Denver 1,100 miles ~ 2 days • 2 days at 1,000 per day at $100 each ~ $200,000 capital • 15% of $200,000 is $30,000 carrying cost • Total • Capital $500,0000 • Carrying Cost $ 75,0000 • From Indianapolis to DCs • Same as before 2 days of sales • Capital $2,400,000 • Carrying Cost $ 360,000 31

  32. What Costs? • Transportation • To Indianapolis $291,800 • From Indianapolis to DCs $460,000 • Pipeline inventory • To Indianapolis • Capital $500,000 • Carrying Cost $ 75,000 • From Indianapolis to DCs • Capital $2,400,000 • Carrying Cost $ 360,000 • Inventory at Plants • Inventory at Indianapolis Cross Dock • Inventory at DCs • Handling • … 32

  33. Inventory at Plants • Same as before • Green Bay holds ½ of a truckload • Denver holds ½ of a truckload • Assume Indianapolis holds ½ of a truckload for delivery to the cross dock • Capital $1,550,000 • Carrying Cost $ 232,500 33

  34. What Costs? • Transportation • To Indianapolis $291,800 • From Indianapolis to DCs $460,000 • Pipeline inventory • To Indianapolis • Capital $500,000 • Carrying Cost $ 75,000 • From Indianapolis to DCs • Capital $2,400,000 • Carrying Cost $ 360,000 • Inventory at Plants • Capital $1,550,000 • Carrying Costs $ 232,500 • Inventory at Indianapolis Cross Dock • Inventory at DCs • Handling • … 34

  35. Inventory at Cross Dock Receiving Shipping WIP Computers & TVs CPUs, Monitors, Consoles 35

  36. Inventory at Indianapolis Cross Dock • Receiving from the Plants • ½ a truckload of CPUs • ½ a truckload of Monitors • ½ a truckload of Consols • Shipping to the DCs • ½ a truckload of Computers and TVs • WIP – like Pipeline inventory • How long does the process take? Capital $1,550,000 Carrying Cost $ 232,500 36

  37. What’s in a Truck • Of Computers and TVs? • In the same mix as demand • 1:1 computers to TVs • X computers in a truck • Weight of the computers 15X lbs • Weight of the TVs 40X lbs • 15X + 40X = 30,000 lbs • X = 30,000/55 = 545 • A full truck of finished goods has • 545 computers and 545 TVs • 545 CPUs, 545 Consoles and 1090 Monitors 37

  38. Inventory at Indianapolis Cross Dock • Receiving from the Plants • ½ a truckload of CPUs • ½ a truckload of Monitors • ½ a truckload of Consols • Shipping to the DCs • ½ a truckload of Computers and TVs • 273 CPUs at $300 each or $ 81,900 • 273 Consoles at $100 each or $ 27,300 • 545 Monitors at $400 each or $218,000 • Total $327,200 • Carrying cost $ 49,080 • WIP – like Pipeline inventory • How long does the process take? Capital $1,550,000 Carrying Cost $ 232,500 38

  39. Inventory at DCs • Inventory at a DC: • Visited by truck 4.6 times per year • Same as before • So inventory costs at DC are the same as before, right? 39

  40. Wrong! Magic? • Total Inventory Carrying Cost at DCs: $4,914,000 compared with $23,250,000 under earlier strategy. Explain! 40

  41. The Difference Explain? 41

  42. With Consolidation • Transportation Costs: $ 751,800 • Inventory Costs at DCs: $ 4,891,300 • Inventory Costs at Plants: $ 513,900 Total: $ 6,757,000 Without Consolidation • Transportation Costs: $ 460,000 • Inventory Costs at DCs: $ 23,250,000 • Inventory Costs at Plants: $ 232,500 Total: $ 23,942,500! 42

  43. Comparison Invest some of the $120 million in the cross dock Spend some of the $18 million on handling 43

  44. Summary • Deterministic Inventory • Pipeline • Cycle • WIP • Pipeline from Days in transit * Value/Day • Cycle from half of shipment • WIP like pipeline • Value of consolidation • Quick & Dirty analysis first 44

  45. Deterministic Supply Chain Design • Next time: should we be shipping in full truckloads? • Later, different kinds of cross docks 45

More Related