Inventory and Capacity

Inadequate inventory causes delays to customers, resulting in negative utility. Therefore, a popular way to cope with demand volatility is to hold inventory, which can be expensive. Inventory acts as a hedge against demand volatility as suppliers can dip into it in times of high demand. The used items are made up and inventory is built up to its original level during periods of low demand, thereby 

---

The ability of the U. S. Frasch industry to fly-wheel domestic supply and demand in the short-run depends on its current inventories and capacity utilization. In the mid-term, mines may be opened or closed based on perceived long-term market equilibria. Longterm, however, in the absence of a significant successful exploration program, Frasch sulfur is a depleting resource. As the peakload, rather than base-load, producer its minimum price is that which will cover the costs of the incremental mine. Its actual price will represent supply-demand equilibrium in world markets. 

C. Gaimon. Simultaneous and dynamic price, production, inventory and capacity decisions. EurJof Operations Research, 35(3) 426-441,1988. 

The interdependency between production and distribution operations, and the tradeoff between the costs associated with them can be illustrated intuitively by the following simple example. Consider a company producing multiple products for multiple customers. To save distribution cost, orders of closely located customers may have to be produced at similar times so that they can be consolidated for delivery right after they are produced. However, orders of closely located customers may require very different production setups, and producing them at similar times may incur a large production cost. Of course, in many cases, in addition to production and distribution, there are other factors such as inventory and capacity that also play important roles. 

The planning and procurement cycle covers short- and longer-term requirements. The demand of the product and its components (biU of materials) are compared with the inventory and capacity and the replenishment requiranents are planned. Planners will decide what to buy and what to make. This make or buy decision process also applies to a service organization leading to either in-house or outsourced services. 

Since no one can possible be in position to identify all imminent missing parts and overload as well as oversupply with inventory and capacity for the planning horizon, the wishes put forth by sales are approved after a rough feasibility estimate regarding realization and thus for the operative allocation of resources. 

The SCM should either avert (purposely reduce cancellations and capacities) this imminent oversupply or with these otherwise untapped resources - inventory and capacities - realize all other conceivable revenue. 

If the customer moves forward with the order by paying for it, all the inventory and capacity allocations become firm, triggering the production and delivery process for the laptop computer. From this example we can see a movement of the three resources in a supply chain materials, money, and information. 

Here the fulcrum is a long way from demand, i.e. the forecasting horizon is long, necessitating more inventory and capacity to balance against demand. 

Synchronisation implies that all parties in the supply chain are marching to the same drumbeat . In other words, through shared information and process alignment there is in effect one set of numbers and a single schedule for the entire supply chain. This somewhat Utopian vision is increasingly becoming reality as web-based technology enables different entities in a network to share information on real demand, inventory and capacity in a collaborative context. 

All processes in a supply chain fall into one of two categories, depending on the timing of then-execution relative to end customer demand. With pull processes, execution is initiated in response to a customer order. With push processes, execution is initiated in anticipation of customer orders based on a forecast. Pull processes may also be referred to as reactive processes because they react to customer demand. Push processes may also be referred to as speculative processes because they respond to speculated (or forecasted), rather than actual, demand. The pusWpull boundary in a supply chain separates push processes from pull processes, as shown in Figure 1-5. Push processes operate in an uncertain environment because customer demand is not yet known. Pull processes operate in an environment in which customer demand is known. They are, however, often constrained by inventory and capacity decisions that were made in the push phase. 

Once the inventory variables are controlled there are two degrees of freedom left in the case of the column shown in Figure 8.1. One degree of freedom should be used to control the feed split and the last available degree of freedom controls fractionation. Feed split has a much more significant effect on the product compositions than fractionation. Therefore, after the inventory and capacity variables have been paired, the primary controlled variable is normally used to set the feed split and the secondary controlled variable is used to set fractionation. 

Hint The column has two degrees of freedom after the in-built inventory and capacity controls have been considered. These should initially be taken up by a bottoms composition specification and a reflux ratio specification. 

After the control variables have been established to control the feed-split and column fractionation, set the other variables to control inventory and capacity of the column. 

The variable pairings required for inventory and capacity control will often be immediately evident after the composition control variables have been selected. If not, the... 

We use late product differentiation to mitigate demand side risks. We hold additional inventory and capacity buffers to mitigate the 2.71 1.20... 

---