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Since Pages 142 to 151 of the text are rather difficult to read,

Since Pages 142 to 151 of the text are rather difficult to read, the following is a presentation of…. An Alternate to Pages 142-151 of “Supply Chain Logistics Management” by Bowersox, Closs, Cooper. “Statistical Methods of Calculating Safety Stock Requirements and Average Inventory”.

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Since Pages 142 to 151 of the text are rather difficult to read,

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  1. Since Pages 142 to 151 of the text are rather difficult to read, the following is a presentation of…

  2. An Alternate to Pages 142-151 of “Supply Chain Logistics Management”by Bowersox, Closs, Cooper “Statistical Methods of Calculating Safety Stock Requirements and Average Inventory”

  3. “Statistical Methods of Calculating Safety Stock Requirements” • Assumptions: • Daily demand is different day by day. • When the supply is replenished the number of days it takes for the replenishment to arrive varies. • Therefore, we have variable demand and a variable replenishment cycle.

  4. Demand Varies Each day we ship out a different amount Day 1 Warehouse

  5. Demand Varies Each day we ship out a different amount Day 2 Warehouse

  6. Demand Varies Each day we ship out a different amount Day 3 Warehouse

  7. Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 3 Day Delivery Supplier

  8. Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 5 Day Delivery Supplier

  9. Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 6 Day Delivery Supplier

  10. “Statistical Methods of Calculating Safety Stock Requirements” • Assumptions: • Daily demand is different day by day. • When the supply is replenished the number of days it takes for the replenishment to arrive varies. • Therefore, we have variable demand and a variable replenishment cycle.

  11. How Much Safety Stock Do We Need?

  12. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus

  13. The next slide shows a table listing 25 days of sales for a hypothetical company.

  14. From Strategic Logistics Management by Stock and Lambert

  15. We can see there is variability in sales from day to day.

  16. We can see there is variability in sales from day to day. Demand Varies Each day we ship out a different amount Warehouse

  17. Now here’s a table with a hypothetical list of the required delivery times for our company’s last 16 orders.

  18. We can see there is variability in the time it takes to replenish our stock.

  19. We can see there is variability in the time it takes to replenish our stock Every time we order a replenishment of stock, delivery time is different. Warehouse Different Delivery Times Supplier

  20. How Much Safety Stock Do We Need?

  21. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus

  22. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus We have seen our daily sales

  23. From Strategic Logistics Management by Stock and Lambert

  24. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus We have seen our daily sales We will need to know the mean of daily sales and the standard deviation of daily sales

  25. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus First, determine the mean of daily sales

  26. Mean = 100 From Strategic Logistics Management by Stock and Lambert

  27. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Mean of daily sales squared Standard deviation of replenishment rate plus Let’s put our daily sales mean of 100 into our formula to determine safety stock. It’s 100 squared or 10,000

  28. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Standard deviation of replenishment rate plus 10,000 Let’s put our daily sales mean of 100 into our formula to determine safety stock. It’s 100 squared or 10,000

  29. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Standard deviation of replenishment rate plus 10,000 We have seen our replenishment rates We will need to know the mean of the replenishment rate and the standard deviation of the replenishment rate.

  30. First the mean of the replenishment rate

  31. First the mean of the replenishment rate Mean = 10

  32. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) Mean of replenishment rate 2 2 Standard deviation of daily sales Standard deviation of replenishment rate plus 10,000 Let’s put our replenishment rate mean of 10 into our formula to determine safety stock.

  33. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) 2 2 Standard deviation of daily sales Standard deviation of replenishment rate 10 plus 10,000 Let’s put our replenishment rate mean of 10 into our formula to determine safety stock.

  34. Safety stock required when there is variability in both demand and lead time. Safety stock = ( ) ( ) 2 2 Standard deviation of daily sales Standard deviation of replenishment rate 10 plus 10,000 Now we need the standard deviation of daily sales and the standard deviation of the replenishment rate.

  35. Find the Standard Deviation of Daily Sales Q = (Observation – mean)2 S N-1

  36. Now Find the Standard Deviation of the Sales Remember, the mean or average is 100 Q = (Observation – mean)2 S N-1

  37. Now Find the Standard Deviation of the Sales Remember, the mean or average is 100 Q = (Observation – 100)2 S N-1

  38. Now Find the Standard Deviation of the Sales Remember, the mean or average is 100 Now calculate how far each day’s sales are from the mean. Q = (Observation – 100)2 S N-1

  39. Mean = 100 From Strategic Logistics Management by Stock and Lambert

  40. Mean = 100 minus mean of 100 = From Strategic Logistics Management by Stock and Lambert

  41. Mean = 100 From Strategic Logistics Management by Stock and Lambert

  42. Mean = 100 From Strategic Logistics Management by Stock and Lambert

  43. Mean = 100 From Strategic Logistics Management by Stock and Lambert

  44. Mean = 100 minus mean of 100 = From Strategic Logistics Management by Stock and Lambert

  45. Mean = 100 From Strategic Logistics Management by Stock and Lambert

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