PowerPointpresentationtoaccompanyChopraandMeindlSupplyChainManagement,5e1-1Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.1-1Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.1-1Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.12-1Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.12ManagingUncertaintyinaSupplyChain:SafetyInventory12-2Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.LearningObjectives1.Understandtheroleofsafetyinventoryinasupplychain2.Identifyfactorsthatinfluencetherequiredlevelofsafetyinventory3.Describedifferentmeasuresofproductavailability4.Utilizemanagerialleversavailabletolowersafetyinventoryandimproveproductavailability12-3Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.TheRoleofSafetyInventory•Safetyinventoryiscarriedtosatisfydemandthatexceedstheamountforecasted–Raisingthelevelofsafetyinventoryincreasesproductavailabilityandthusthemargincapturedfromcustomerpurchases–Raisingthelevelofsafetyinventoryincreasesinventoryholdingcosts12-4Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.TheRoleofSafetyInventory•Threekeyquestions1.Whatistheappropriatelevelofproductavailability?2.Howmuchsafetyinventoryisneededforthedesiredlevelofproductavailability?3.Whatactionscanbetakentoimproveproductavailabilitywhilereducingsafetyinventory?12-5Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.TheRoleofSafetyInventoryFigure12-112-6Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.DeterminingtheAppropriateLevel•Determinedbytwofactors–Theuncertaintyofbothdemandandsupply–Thedesiredlevelofproductavailability•MeasuringDemandUncertaintyD=AveragedemandperperiodsD=Standarddeviationofdemand(forecasterror)perperiodLeadtime(L)isthegapbetweenwhenanorderisplacedandwhenitisreceived12-7Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingDemandDistributionOverLPeriodsDL=DisL=si2+2rijsisjijåi=1Låi=1LåDL=DLsL=LsDThecoefficientofvariationcv=s/m12-8Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.MeasuringProductAvailability1.Productfillrate(fr)–Fractionofproductdemandsatisfiedfromproductininventory2.Orderfillrate–Fractionofordersfilledfromavailableinventory3.Cycleservicelevel(CSL)–Fractionofreplenishmentcyclesthatendwithallcustomerdemandbeingmet12-9Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.ReplenishmentPolicies1.Continuousreview–Inventoryiscontinuouslytracked–OrderforalotsizeQisplacedwhentheinventorydeclinestothereorderpoint(ROP)2.Periodicreview–Inventorystatusischeckedatregularperiodicintervals–Orderisplacedtoraisetheinventoryleveltoaspecifiedthreshold12-10Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingCycleServiceLevelandFillRate•EvaluatingSafetyInventoryGivenaReplenishmentPolicyExpecteddemandduringleadtime=DLSafetyinventory,ss=ROP–DL12-11Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingCycleServiceLevelandFillRateAveragedemandperweek,D=2,500Standarddeviationofweeklydemand,sD=500Averageleadtimeforreplenishment,L=2weeksReorderpoint,ROP=6,000Averagelotsize,Q=10,000Safetyinventory,ss=ROP–DL=6,000–5,000=1,000Cycleinventory=Q/2=10,0002=5,00012-12Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingCycleServiceLevelandFillRateAverageinventory=cycleinventory+safetyinventory=5,000+1,000=6,000Averageflowtime=averageinventory/throughput=6,000/2,500=2.4weeks12-13Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingCycleServiceLevelandFillRate•EvaluatingCycleServiceLevelGivenaReplenishmentPolicyCSL=Prob(ddltofLweeks≤ROP)CSL=F(ROP,DL,sL)=NORMDIST(ROP,DL,sL,1)(ddlt=demandduringleadtime)12-14Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingCycleServiceLevelandFillRateQ=10,000,ROP=6,000,L=2weeksD=2,500/week,sD=500DL=DL=2´2,500sL=LsD=2´500=707CSL=F(ROP,DL,sL)=NORMDIST(ROP,DL,sL,1)=NORMDIST(6,000,5,000,707,1)=0.9212-15Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingFillRateGivenaReplenishmentPolicy•Expectedshortageperreplenishmentcycle(ESC)istheaverageunitsofdemandthatarenotsatisfiedfrominventoryinstockperreplenishmentcycle•Productfillratefr=1–ESC/Q=(Q–ESC)/Q12-16Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingFillRateGivenaReplenishmentPolicyESC=(x–ROP)f(x)dxx=ROP¥òESC=–ss1–FssssLæèçöø÷éëêêùûúú+sLfssssLæèçöø÷ESC=–ss[1–NORMDIST(ss/sL,0,1,1)]+sLNORMDIST(ss/sL,0,1,0)12-17Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingFillRateGivenaReplenishmentPolicyLotsize,Q=10,000Averagedemandduringleadtime,DL=5,000Standarddeviationofdemandduringleadtime,sL=707Safetyinventory,ss=ROP–DL=6,000–5,000=1,000ESC=–1,000[1–NORMDIST(1,000/707,0,1,1)]+707NORMDIST(1,000/707,0,1,0)=25fr=(Q–ESC)/Q=110,000–252/10,000=0.997512-18Copyright©2013PearsonEducation,Inc.publishingasPrenticeHall.EvaluatingFillRateGivenaReplenishmentPolicyFigure12-212-19Copyr