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Retailer
Orders placed 5 5
Wholesaler
Orders placed 5 5
Distributor
Orders placed 5 5
Old production
Factory
Raw Materials
5b Manufacturing Material Flow
3a Customer sales
3a Incoming orders
3a Incoming orders
3a Incoming orders
5a Production request
Material Flow
Material Flow
Material Flow
6 Material Flow Incoming Deliveries Material Flow Outgoing deliveries 4 2a 3b 1 Packing Material Flow
Inventory
4
Inventory
4 1 2 2 3b 1 2 2 3b
Inventory
4 1 2
Inventory
2b
3b
Distributor
O rders placed 5
Inventory
O utgoing deliveries 4 Incom Deliveries ing
3b
November 2010
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predicts amplification
November 2010
Slide: 3
November 2010
Slide: 4
Factory Imports
5 70 days
Dedicated Warehouse
1 - 3 days
Retail Stores
1 - 3 days
Other Manufacturer Imports
5 70 days
Distributor NDC
November 2010
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November 2010
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f t r i t rmitt
mand
Demand ( nit )
Dat
Brian Egles Brian.egles@bjpce.co.uk A lost sales approach to inventory November 2010 Slide: #
Frequency
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46
Number f days
November 2010
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Starting situation
Erratic demand = variable = bullwhip Store managers setting own inventory Lead times reliable High margin, expectation of convenience Cannot afford to set inventory as days supply Lost sales expensive in and reputation Plans for APO at least 2 years away Need a simple, reliable approach
A lost sales approach to inventory November 2010 Slide: 9
November 2010
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November 2010
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November 2010
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Max Min
Max Min
12 10
Store 2882 Lost sales
Max Min
Inventory Max Min
12 10 8 Jun Jul Aug BASECASE 50 50 1 Apr May Jun Policy Min Max Rounding Nov Dec Max
Nov
Jan
Feb
Mar
Apr
May
2 Store Average Sales (units/month) 0 Average Lost Sales (units/month) Average Inventory (units)
Nov
Dec
Policy 6 Min Max 4 RoundingMar Jan Feb 2020 26.67 2.83 4.42 2 0 Sep
Jul
Aug Min
Store Average Sales (units/month) Average Lost Sales (units/month) Average Inventory (units)
Oct
Apr
May
Jun
Jul
Aug BASECASE 3 10 1
Store Average Sales (units/month) Average Lost Sales (units/month) Average Inventory (units)
November 2010
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P = Probability of demand N Sum L x P for all N > Q Best explained with an example
November 2010
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Sales Probability 0 0.6807 1 0.2618 2 0.0503 3 0.0065 4 0.0006 5 0.0000 6 0.0000 7 0.0000 8 =POISSON(sales, average, 0.0000 9 0.0000 10 0.0000
0)
If: Target stock (order up to) level = 1 If: Demand = 2, Risked sales = 1 with probability 0.0503 = 0.0503 Demand = 3, Risked sales = 2 with probability 0.0065 = 0.0130 Demand = 4, Risked sales = 3 with probability 0.0006 = 0.0018 ..until probability effectively 0 Total = 0.0653 Estimate of lost profit = 0.0651 x 100% x 100% x 100 x 63 = 409
Brian Egles Brian.egles@bjpce.co.uk A lost sales approach to inventory November 2010 Slide: 16
Average
L (2) T (5)
Note: different if inventory would go below zero but that is not relevant
Brian Egles Brian.egles@bjpce.co.uk A lost sales approach to inventory
L (2) T (5)
November 2010
Slide: 17
Minimum
0.80 0.70 Pro a ility 0.60 0.50 0.40 0.30 0.20 0.10 0.00 0 1 2 3 4 5 6 7 8 9 10 Sales in lead+review time (and Order-up-to level) Pro a ility Total Cost
2,000
1,500
1,000
500
November 2010
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60 Inventory and lost sales (units) 50 40 30 20 Inventory and lost sales (units) 10 0 Sep Oct Nov Dec Jan 2590 27.67 0.00 44.01 Feb Mar Apr May
Store 2590 Lost sales Inventory Max Min
Max Min
Store Average Sales (units/month) Average Lost Sales (units/month) Average Inventory (units)
Oct
Nov
Dec
Jan 2590 29 0 00 5
Feb
Mar
Apr
May
Jun
Jul
Aug OISSON 5 5
Store Average Sales units ont Average Lost Sales units ont Average Inventory units
November 2010
Slide: 19
12 Inventory and lost sales (units) 10 8 6 4 16 Inventory and lost sales (units) 2 0 Sep Oct Nov Dec Jan 2020 26.67 2.83 4.42 Feb Mar Apr May 14 12 Jul 10 Aug BASECASE 10 10 1 Max Min
Store 2020 Lost sales Inventory Max Min
Max Min
Jun
Store Average Sales (units/month) Average Lost Sales (units/month) Average Inventory (units)
Sep
Oct
Nov
Dec
Feb
Mar
Apr
May
Jun
Jul
Aug OISSON 14 14 1
Store Average Sales (units/ onth) Average Lost Sales (units/ onth) Average Inventory (units)
November 2010
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12 Inventory and lost sales (units) 10 8 6 4 7 Inventory and lost sales (units) 2 0 Sep Oct Nov Dec Jan 2882 6.50 0.50 5.08 Feb Mar Apr May 6 5 Jul Aug BASECASE 3 10 1
Store 2882 Lost sales Inventory Max Min
Max
Jun
Store Average Sales (units/month) Average Lost Sales (units/month) Average Inventory (units)
Sep
Oct
Nov
Dec
Feb
Mar
Apr
May
Jun
Jul
Aug OISSON 6 6 1
Store Average Sales (units/ onth) Average Lost Sales (units/ onth) Average Inventory (units)
November 2010
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Implementation
Extracts from SAP ERP:
Initally MC.9 export and lookups Business Objects report once proven
Result
Inventory changed very little
Small reduction Masked by growing business and new products
On shelf availability improved Estimated revenue >250k / year Time saving in stores improves service reliability Central team credibility prior to APO project
November 2010
Slide: 23
Warehouse
Retail
Simulate replenishment
November 2010
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Thankyou
Brian Egles www.bjpce.co.uk 07785 527324
http://bjpce.co.uk/index.php/contactlist/thesisrequestmenu