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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, 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”
“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.
Demand Varies Each day we ship out a different amount Day 1 Warehouse
Demand Varies Each day we ship out a different amount Day 2 Warehouse
Demand Varies Each day we ship out a different amount Day 3 Warehouse
Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 3 Day Delivery Supplier
Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 5 Day Delivery Supplier
Replenishment Varies Every time we order a replenishment of stock, delivery time is different. Warehouse 6 Day Delivery Supplier
“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.
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
The next slide shows a table listing 25 days of sales for a hypothetical company.
We can see there is variability in sales from day to day. Demand Varies Each day we ship out a different amount Warehouse
Now here’s a table with a hypothetical list of the required delivery times for our company’s last 16 orders.
We can see there is variability in the time it takes to replenish our stock.
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
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
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
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
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
Mean = 100 From Strategic Logistics Management by Stock and Lambert
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
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
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.
First the mean of the replenishment rate Mean = 10
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.
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.
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.
Find the Standard Deviation of Daily Sales Q = (Observation – mean)2 S N-1
Now Find the Standard Deviation of the Sales Remember, the mean or average is 100 Q = (Observation – mean)2 S N-1
Now Find the Standard Deviation of the Sales Remember, the mean or average is 100 Q = (Observation – 100)2 S N-1
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
Mean = 100 From Strategic Logistics Management by Stock and Lambert
Mean = 100 minus mean of 100 = From Strategic Logistics Management by Stock and Lambert
Mean = 100 From Strategic Logistics Management by Stock and Lambert
Mean = 100 From Strategic Logistics Management by Stock and Lambert
Mean = 100 From Strategic Logistics Management by Stock and Lambert
Mean = 100 minus mean of 100 = From Strategic Logistics Management by Stock and Lambert
Mean = 100 From Strategic Logistics Management by Stock and Lambert