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Theories of inventory management
Theories in inventory management
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4.782 International Supply Chain Management
Group Assignment
Zhou, Chi 20141533
Wang, Anqi 20142345
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1. The theories of the game include supply chain management (Simchi-Levi, D. and Y. Zhao, 2003), supply network (Nigel Slack, Stuart Chambers, Robert Johnston, 2010), inventory management, reorder points (Wright, 2015), and Bullwhip effect (Wright, 2015). The game has 4 levels of supply chain: factory, distribution, wholesaler and retailer. The products could not be supplied over level. Each reorder has a minimum amount and there is a delivery lead time from a level to another. The costs include $10 per case inventory fee and $15 per case for back orders. Demand forecasting based on inventory control and reorder points
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It is very important to minimize the impact of demand fluctuation and the costs.
2. The four levels distribution system is very normal in reality. The retail level has direct contact with customers. They should know the customers buying behavior and be good at researching market and forecasting demand. Their forecasting is direct effect the whole supply chain and manufacture. As a most real information source, they have the responsibility to deliver the information to the supply chain. The wholesaler sees a large order followed by a quiet period and sees a distorted version of the actual requirement on the ground (Wright, 2015). They always need to handle large amounts of data from all their retailers and deliver the forecasting information to the next level. They should know the sale situation of their retailers and make their own forecasting. In this process, there is already an inevitable deviation between the
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Why things went wrong through playing the well-known “beer game.” In this exercise, participants take on the roles of customers, retailers, wholesalers, and suppliers of beer but are not allowed to freely communicate with each other. Instead, we must make ordering decisions based solely on orders from the next downstream player. Academic application of the beer game has consistently yielded common results: variability upstream is much greater than variability downstream. Such results imply that irrational decision making resulting from misunderstandings regarding inventory and demand information can cause the bullwhip effect (Bullwhip effect, 2015). The bullwhip effect is actually a product of reasonable decisions being made within a flawed supply chain infrastructure. In this context, four major causes have been
In the given course I am doing a comprehensive literature review of ‘cooperative game theory in the field of supply chain management.’ Cooperative game theory comes in nature when more than two parties in the supply chain network come together and form alliances to gain more payoffs as compared to what they were obtaining alone.
...n Empirical Comparison of Anticipatory and Response Based Supply chain Strategies.” The International Journal of Logistics Management. 9: 2; 21-33. Lair, Noor Ajian Mohd, Awaluddin Mohamed Shaharoun and Mohamed Shariff Nabi Baksh, “JIT Implementation across A Supply Chain and It effects on Inventory Distribution”, http://www.moste.gov.my/kstas/NSFWorkshop/NSF/nsf%5CAAI16.DOC Lenzini, Joshua M (2002) “The Army's answer to supply chain management Army Logistician”; Fort Lee; Sep/Oct 2002 Li, Yuan, Fan, Zhiping and Zhao, Xuan (1999). “An Integrated Framework of Supply chain Management System.” Software Engineering Conference 1999. Proceeding sixth Asia Pacific. 196 – 199 Pagh, Janus D and Martha C Cooper (1998) “Supply chain postponement and speculation strategies: How to choose the right strategy”, Journal of Business Logistics, Issue # 2, Volume 19, Pg. 13-33.
A supply chain is a system through which organizations deliver their products and services to their customers. The network begins with the basic ingredients to start the chain of supply, which are the suppliers that supply raw materials, ingredients, and so on. From there, it will transfer the supplies to the manufacturer who builds, assembles, converts, or furnishes a product. The chain now needs to get the product to the consumer by transporting the finished product from the manufacturer through a warehouse or distribution center. An example is that Wal-Mart has a nearby distribution center where products are delivered there and then split up to be delivered to a retail Wal-Mart. “Wal-Mart will take responsibility for breaking down larger loads and delivering the product to other Wal-Mart stores” (Ehring 1).
Understanding the changes in the market and the growth of e-commerce prompted the organization to invest heavily in its supply chain management forecasting and management system. The development of a network of distribution centers and Direct Fulfillment Centers to position the company to capitalize on the growing e-commerce market indicate a strong understanding of the need to adapt to changing market forces. The company spent over $300 million on new distribution center facilities in 2014 alone, and continues to expand to maintain efficiency in product movement (Cassidy,
Sunil Chopra and Peter Mendl argue that inventory is one of the drivers of the supply chain performance and that it has a great impact as the other drivers, such as facilities and transportation which are the same as inventory being ‘Logistical Drivers’. Analyzing the position of inventory in the supply chain, certain factors of the inventory will be taken into account such as the responsiveness, economies of scale, the different variations of inventory, how other factors will affect the inventory, and transportation, which as stated before it is one of the drivers in the supply chain, Vs. inventory. All these concepts of inventory will be analyzed in the supermarkets domain and how crucial is inventory for the supply chain performance.
Forecast accuracy is achieved after disciplined and structured methodologies are applied in the supply chain management. An accurate forecast is not the last step to master supply chains, it needs to be complemented with the creation of demand-driven supply chains with real time visibility. This means extending beyond the enterprise into customer and supplier supply chains, resulting in a competitive advantage.
This report has clearly in detail described the meaning, benefits as well as the need and challenges of the RFID in the supply chain system. While RFID comes with a larger magnitude of benefits than the bar code, it’s an expensive medium and comes at a price that may be prohibitive to many businesses. On the one hand, RFID is advantageous in different areas of the supply chain and does not require line-of-sight scanning; it helps in labor reduction, enhances visibility of products and processes , and helps in inventory management. On the other hand, RFID is an expensive solution, lacking benchmarks or standards, suffers from some adverse deployment issues, and suffers from major privacy concerns. However with the ultimate aim to see the establishment of item-level tracking which should act to revolutionize SCM practices, RFID is here to stay.
Lean manufacturing and just-in-time processing are great business strategies that can severely stress a supply chain. The supply chain and supply chain management is a critical operations management element for any major company to succeed and remain competitive in the global market. The supply chain is one of many pieces critical to maximizing value to the end customer and requires close management to minimize external impacts. If a company is relying on another company to supply the raw materials needed for their production line, then impacts to this other company could impact their supply chain. Careful risk management is needed to optimize performance. As a company expands into global markets and global suppliers, this risk and management challenge is multiplied. The global nature of the company could impact important activities such as transportation, funds transfers, suppliers, distributors, accounting and information sharing. Disruption to the supply chain can significantly reduce revenue, cut market share, inflate costs and threaten production. A major disruption would have obvious impacts to profit, but could have additional intangible impacts to the credibility of the company if products are not delivered on time.
Amongst some of the factors that are responsible to causing the bullwhip effect include that of all the participants in the supply chain process making their trade predictions in isolation just like in the case of pampers as explained above (Turban, et al., 2002). The process of order batching may also take a central role in bringing about the effect for the reason that most of the changes that are brought about by product demand happen to be hidden. Additionally, it is important to note that most of thee practices may be exaggerated by some of the marketing efforts developed by the company thus bringing about the snowballing effect to the organizations (Christopher,
UK Morepeth facility, the company’s ability to integrate over seas businesses and ramp up of
Sethi, S, Yan, H, & Zhang, H. (2005) Inventory And Supply Chain Management With Forecast Updates New York, NY : Springer.
Inventory management is a method through which a business handles tangible resources and materials to ensure availability of resources for use. It is a collection of interdisciplinary processes including a full circle of the demand forecasting, supply chain management, inventory control and reverse logistics. Inventory management is the optimization of inventories of manufactured goods, work in progress, and raw materials. According to Doucette (2001) inventory management can be challenging at times; however, the need for effective inventory management is largely seen more as a necessity than a mere trend when customer satisfaction and service have become a prime reason for a business to stand apart from its competition. For example, Wal-Mart’s inventory management is one of the biggest contributors to the success of the company; effective and efficient inventory management is of critical importance.
With most aspects of life it is frequently the failures, as opposed to successes, from which we learn the most indelible lessons. With this approach in mind, The Beer Game to a large extent serves as the very antithesis of a properly functioning supply chain. In other words, the exercise demonstrates how NOT to manage a logistic operation. Hopefully, an examination of the pitfalls and shortcomings of a worst case scenario and avoiding the same types of mistakes will lend insight how to correctly manage a supply chain. What otherwise appears as a simple classroom exercise actually represents a powerful training tool with enduring lessons directly transferable to real world application.
Coyle, J., Langley, C., Gibson, B., Novack, R. and Bardi, E. (2008).Supply Chain Management: A Logistics Perspective. 8th ed. Cengage Learning, p.366.
Inventory management involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to meet customer wants and needs (Collier & Evans, 2009). In order for business and supply chains to run smoothly, they must meet all the listed requirements for effective inventory management. Thus, inventory management must be managed wisely in order to be a successful an...