Safety stock costs transportation

For supply chains, transportation flows enable products or components to change location, thus enabling them to be used at their demand points. The timing of these transportation flows in turn interacts with transport capacity and chain structure to impact supply chain performance. Given this interaction, the total supply chain impact of a choice of transportation flows has to include transport costs, cycle stock costs, safety-stock costs, and in-transit inventory costs. For each possible transport mode, there are... 

What is risk pooling How does it affect safety stock and transportation costs For what type of products risk pooling is beneficial ... 

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. 

From example 9 it is known that the pipeline transport is assumed to induce negligible fixed costs such that a continuous supply of both sites minimizes the cycle stocks. Hence, it is concluded that Si = Si + for = 1,2 such that at both sites only safety stocks... 

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. 

The service level desired in this system is 90%, which means that safety stock adequate to meet 1.282 standard deviations of demand on the warehouse must be carried at each warehouse. For example, if there is only one warehouse with a standard deviation of demand at the warehouse of283, then 283 1.282 = 363 units. The delivery time to the warehouse is 1 week. So, the required safety stock is added to the demand during the lead time to determine the reorder point (ROP) for each warehouse. For example, when there is one warehouse, the ROP becomes 8,000 + 363 units or 8,363 units. But, this is less than 1 truck load (LTL), which means the warehouse would have to pay higher transportation costs. 

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-... 

Bullwhip effect results in poor aggregate production plans that lead to increased safety stocks, reduced customer service due to shortages, increased transportation cost, and inefficient allocation of resources (labor and equipment). By increasing the communication of actual downstream demand and collaboration between trading partners, the bullwhip effect can be minimized. One such collaborative process is known as collaborative planning, forecasting and replenishment (CPFR). Refer to the appendix in Chapter 3 of this book for a detailed description of the bullwhip effect in supply chains. 

The mode of transportation impacts inventory cost in different ways. First, a slower mode creates higher in-transit inventory, increasing the safety stock needed to protect against the uncertainties in supply and demand. It also increases the order lead time, so additional safety stock may be needed to protect against uncertainty in demand during the lead time. Second, larger shipment sizes may create cycle inventory, which happens when the batch shipment size exceeds the current demand. Thus smaller shipments using faster modes can reduce three types of inventories, but the associated transportation costs would increase. 

Custom duties and transportation Realizing that the total cost of ownership is a superior framework than only cost per unit to gauge overall cost, customs duties and transportation costs are added into the mix to determine total purchasing costs. Inventory Inventory and safety stock levels and resultant inventory costs are affected by expected demand, lead-time, their variability and service levels. Distance and crossing country borders affect inventory-ordering policies and directly affect inventory costs. 

Transport infrequently to minimize stocks for both safety and to reduce costs and environmental hazards arising from the need to dispose of surplus or expired material... 

Another important factor that must be considered when making stocking decisions is the reduction in safety inventory that results from aggregation. If aggregation reduces the required safety inventory for a product by a large amount, it is better to carry the product in one central location. If aggregation reduces the required safety inventory for a product by a small amount, it may be best to carry the product in multiple decentralized locations to reduce response time and transportation cost. 

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