This is a summary for the international supply chain management 2 course. These are chapters 2,7,9 and 11 from the book guide to supply chain management which is the first book that you need for the exam. All important information is included and keywords are explained.
Samenvatting Guide to Supply Chain Management - International Supply Chain Management 1 (1000IS1_22)
Summary for International Supply Chain Management HvA final endterm exam, chapters 5,6, 10
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Supply chain management
Chapter 2
2.1 inventory and supply chains
Inventory can be defined as the quantity of goods that is available on hand or in stock. There
are 3 main formats of inventory:
1. Raw material
2. Work in progress
3. Finished goods
Why is there inventory?
- To protect against uncertainty. This can be caused by variations in demand or restrictions in
supply.
- Cost reduction through inventory is achieved when stock is held close to the customer.
- Protect against quality defects. A product that is faulty can be substituted quickly when
inventory is held.
- Stabilize manufacturing.
- Anticipation shock is similar to stabilizing manufacturing
Managing inventory is about balancing supply and demand.
There are several different types of inventories:
- Cycle or replenishment stock: this stock keeps the supply chain moving. Cycle stock is
the inventory necessary to meet the normal daily demand.
- Safety stock: this stock buffers against forecast error and the supplier’s unreliability.
- In-transit stock: this stock is in the process of being transported to a stocking of delivery
point.
- Seasonal stock: this stock is built up in advance to meet increased sales volumes during a
particular time of the year.
- Promotional stock: this stock feeds into marketing campaigns and advertising.
- Speculative stock: this stock is held to protect against price increases or periods of limited
availability.
- Dead or obsolete stock: this stock is no longer usable or saleable in the market.
Cycle stock
The average stock holding calculation is based on the order quantity. The average stock is defined as:
AS= Q/2
Where AS= average stockholding and Q= order quantity
, Safety stock
There are 2 parts of the equation to account for in the safety stock calculation:
a. Safety stock supply that covers unplanned production and delivery delays
b. Safety stock demand that covers unplanned changes in demand
Safety stock= (a) + (b)
(a)= safety stock supply
(b)= safety stock demand
(a)Safety stock supply= average demand x supplier uncertainty
(b) safety stock demand= standard deviation of demand x service level factor x √LT + SU
Example part b:
Forecast error = 50
service level factor= 1.64
lead-time= 4 days
supplier uncertainty= 2 days
50 x 1.64 x √2+4 = 200.85 = 201
To get the total safety stock part a = 1000 units and part b = 201 units must be summed up. The final
approximate safety stock calculation would be 1201 units.
Green inventory management: when the focus is not just on the cost and service but also the carbon
footprint of the inventory.
There are 4 ways in which you can positively influence your safety stock position:
1. Reduce lead-time: reducing it from 4 days to 1 day, less safety stock is needed to safeguard
supply.
2. Reduce supplier uncertainty: as suppliers become more reliable, a considerably lower safety
stock can be held.
3. Reduce forecast error: demand uncertainty can be reduced and thus less safety stock will be
needed.
4. Reduce service level: will improve the overall safety stock position but this should be
discussed and agreed together with your customer.
2.2 demand and supply planning
Demand can be segregated into various categories:
- Level of demand
demand for a certain item can be classified as high or low.
- Frequency of demand
There is fast demand and slow demand.
- Patterns of demand
It can be described as stable, trend or seasonal.
- Product life cycle positioning
There are 5 distinct phases in a product life cycle, launch, emerging, established, decline, withdrawal.
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