Safety inventory average

Average safety inventory measures the average amount of inventory on hand when a replenishment order arrives. Average safety inventory should be measured by SKU in both units and days of demand. It can be estimated by averaging over time the minimum inventory on hand in each replenishment cycle. 

Given a lot size ofQ = 600 purses, the cycle inventory, the focus of the previous chapter, is 2/2 = 300 purses. The inventory profile at Bloomingdale s in the presence of safety inventory is shown in Figure 12-1, which illustrates that the average inventory at Bloomingdale s is the sum of the cycle and safety inventories. 

EVALUATING SAFETY INVENTORY GIVEN A REPLENISHMENT POLICY In the case of B M, safety inventory corresponds to the average number of phones on hand when a replenishment order arrives. Given the lead time of L weeks and a mean weekly danand of D, using Equation 12.2, we have... 

This is because, on average, D X L phones will seU over the L weeks between when the order is placed and when the lot arrives. The average safety inventory when the replenishment lot arrives is thus ROP — D X L. The evaluation of safety inventory for a given inventory policy is described in Example 12-1 (see spreadsheet Chapter 12-examples worksheet Example 12-1). 

Assume that weekly demand for phones at B M Office Supplies is normally distributed, with a mean of 2,500 and a standard deviation of 500. The manufacturer takes two weeks to fill an order placed by the B M manager. The store manager currentiy orders 10,000 phones when the inventory on hand drops to 6,000. Evaluate the safety inventory and the average inventory carried by B M. Also evaluate the average time a phone spends at B M. 

Average inventory = cycle inventory -I- safety inventory = 5,000 -I- 1,000 = 6,000 B M thus carries an average of6,000 phones in inventory. Using Little s law (Equation 3.1), we have Average flow time = average inventory/throughput = 6,000/ 2,500 = 2.4 weeks Each phone thus spends an average of 2.4 weeks at B M. 

Weekly demand for gaming consoles at Liverpool, a Mexican department store chain, is normally distrihnted with a mean of 1,000 and a standard deviation of 400. The replenishment lead time from the suppher is four weeks. Liverpool is targeting a CSL of 95 percent and uses a periodic review policy under which it reorders consoles every eight weeks. What is the average order size How much safety inventory of consoles should Liverpool carry What should its order up to level be How much safety inventory would be required if Liverpool switched to a continuous review policy ... 

D Average demand per unit time aj). Standard deviation of demand per unit time ss Safety inventory (recall that ss = ROP — D[)... 

Eastern Electric (EE) is a major appliance manufacturer with a large plant in the Chicago area. EE purchases all the motors for its appliances from Westview Motors, located near Dallas. EE currently purchases 120,000 motors each year from Westview at a price of 120 per motor. Demand has been relatively constant for several years and is expected to stay that way. Each motor averages about 10 pounds in weight, and EE has traditionally purchased lots of 3,000 motors. Westview ships each EE order within a day of receiving it (lead time is one day more than transit time). At its assembly plant, EE carries a safety inventory equal to 50 percent of the average demand for motors during the replenishment lead time. 

Based on the average transport duration, inventory carrying costs for pipeline inventory are calculated (3.18). Further safety stocks are considered to be independent of the chosen network design and hence not considered. 

In particular, consider an alternate proposal for the rail option, whereby the trains travel at a lower average lead time that is less variable. Since transport cost per unit of train shipments is low, these lower average lead time and less variability could reduce both the in-transit inventory holding costs to ship by rail and the associated safety stock. We examine next the impact of these changes on the total supply chain cost experienced by the shipper. 

To achieve the lowest transportation costs to the warehouse, the decision was made in this example to order only in truck load quantities (TL). In this example, that means that 15,000 units are ordered at one time. Since delivery time to the warehouse is one week, this means that the safety stock is still 363 if there is one warehouse, so the ROP is 15,363 units. The average inventory in the warehouse is the beginning inventory plus the ending inventory divided by two. If there is one warehouse, this is (15,363 + 363)/2 = 7,823 units. The ending inventory is 363 because this is the level of the safety stock and it is equally probable that the inventory will be higher than this as it is that the inventory will be lower than this. Regardless of the number of warehouses in the system, there will be a total of 28 deliveries to the warehouses, when the deci-... 

Installation-based inventory systems. Consider the installation-based inventory system with the base stock levels (10.14) and (10.17). Aviv (2002b) provides the following expression for the long-run average costs as fiinctions of the safety-stock parameters 7 and 7 ... 

In this section we describe a way for finding the pair of safety-stock parameters 7 and 7, that minimize the long-run average total supply chain cost. We assume that installation-based policies are used. The extension of the discussion to echelon-based policies is relatively easy, given the observations made in 6.1.2. We refer to a supply chain in which these optimal safety stocks are used, as a coordinated two-level inventory system. We assume that h < and set = 0. Aviv (2002b) shows the following ... 

Annual procurement cost = (10) (20) (365) = 73,000 Lead-time demand = (10) (20) = 200 units Safety stock = (50%) (200) = 100 units Average cycle inventory =. 555 = 250 units... 

From available records, it appears that mobile equipment often has a low level of utilization. Powered equipment is often employed well beyond its economic life, generating penalty costs in spare-parts inventories, maintenance, and productivity. Five to seven years has been calculated to be the average economic life of a powered vehicle, provided proper maintenance has been performed. Keeping a lift truck beyond the optimal time increases maintenance costs by 30 to 40 percent. Proper operator training, which is required by the U.S. Occupational Safety and Health Administration (OSHA), can improve efficiency and reduce maintenance costs as well. By tracking costs and utilization, it is possible to reduce the size of the lift truck fleet. Often, two old lift trucks can be replaced with one newer model. 

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