Supply chain decisions inventory

The main difference between this case and the case when the retailer orders after observing demand is that the supply chain, too, has to make decisions before observing demand. Thus, all orders have to be placed and produced at L units of time before the start of the season. The effect is that the retailer places orders for K units of inventory, the manufacturer produces the entire order and incurs c + per unit, and the supply chain has inventory ready before the season demand unfolds. The supply chain expected profit is rMin(Demand, K) — c + c K. 

The main difference under consignment inventory is that the manufacturer continues to own the retail consignment inventory until the product is sold to the customer. Thus, consignment inventory is equivalent to the manufacturer purchasing store shelf space and choosing inventory levels to maximize his profits. Coordination is achieved because the supply chain decisions are made by one decision maker. Such an approach is common in the provision of spices the spice racks in many retail stores are managed by the supplier. 

Seifert, et al. (2001) assume that the manufacturer has a direct (internet) market that serves a different customer segment than the traditional retail channel (not owned by the manufacturer) and that demands in the two channels are thus independent. They model the inventory decisions for a supply chain comprised of a manufacturer and N retailers, as shown in Figure 15.4. They compare a dedicated supply chain to a cooperative supply chain. In a dedicated supply chain the inventory sent to each retailer is used exclusively to meet demand at that retailer while inventory at the internet store is used exclusively to meet demand at that store. In a cooperative supply chain, leftover inventory at the retailers is available to fill demand at the internet store. 

It is important to recognize that the three types of supply chain decisions— strategic, tactical, and operational—are interrelated. For example, the number and locations of plants affect the choice of suppliers and the transportation mode for receiving raw materials. Moreover, the number and locations of plants and warehouses also affect the inventory levels required at the warehouses and the delivery times of products to customers. Aggregate production planning decisions affect product availability and customer fulfillment. 

Supply chain drivers represent the critical areas of decision making in SCM—those that ultimately generate the outcomes that impact the supply chain performance. The key drivers of supply chain include inventory, transportation, facilities, and suppliers. Companies maintain inventory to protect against unpredictable demand and unreliable supply. The key decision variables in managing inventory in supply chains are how much and when to order (inventory policies) and where to hold inventory (locations). Chapters 4,5, and 12 discuss the supply chain inventory decisions in detail. 

Reductions in working capital will have a beneficial effect on an organisation s ROI. For example, inventory reductions increase both prohtability (reduced costs) and capital (increased asset utihsation). Supply chain decisions have an impact on costs and assets, so they affect both the drivers of ROI. Understanding the trade-offs involved is key to increasing value. 

Every forecast supports decisions that are based on it, so an important first step is to identify these decisions clearly. Examples of such decisions include how much of a particular product to make, how much to inventory, and how much to order. All parties affected by a supply chain decision should be aware of the link between the decision and the forecast. For example, Walmart s plans to discount detergent during the month of July must be shared with the manufacturer, the transporter, and others involved in filhng demand, as they all must make decisions that are affected by the forecast of demand. All parties should come up with a common forecast for the promotion and a shared plan of action based on the forecast. Failure to make these decisions jointly may result in either too much or too httle product in various stages of the supply chain. 

The trade-off between transportation and inventory costs is significant when designing a supply chain network. Two fundamental supply chain decisions involving this trade-off are... 

In addition to their use as stand-alone systems, LPs are often included within larger systems intended for decision support. In this role, the LP solver is usually hidden from the user, who sees only a set of critical problem input parameters and a set of suitably formatted solution reports. Many such systems are available for supply chain management—for example, planning raw material acquisitions and deliveries, production and inventories, and product distribution. In fact, the process industries—oil, chemicals, pharmaceuticals—have been among the earliest users. Almost every refinery in the developed world plans production using linear programming. 

There are typically a few major contributors to the cost savings from the business side, such as consolidated purchasing, inventory management, supply chain integration, offshoring etc. Look for those to justify the harmonization decision - the rest is windfall profit . 

The core component of the oil supply chain is the refinery, where the received oil batches are managed to feed the crude distillation units in proportions that give origin to the desired cuts and products. However, the oil supply and the oil products distribution have to answer in agreement to their predicted demands. For this reason, fliere is the need to build decision support tools to manage inventory distribution. This work focuses on the development of a MILP model that describes the oil products distribution through a pipeline that connects one refinery to one tank farm. In order to supply die local market, the model represents the interaction between the pipeline schedule and the internal restrictions at the tank farm. Real world data from CLC (a Portuguese company) validate the model formulation. 

Uncertainty breeds inventory. Managers involved in transportation often have to make planning decisions, like routing, that directly affect the movement of raw materials or finished goods. These decisions often affect other components in the supply chain network, in which case the transportation management team cannot afford to make an incorrect decision. Consequently, any mistakes not only jeopardize other elements within the system but also lead to customer dissatisfaction created by the delay in the delivery times (Quirm 1998). 

Location of plants, warehouses, distribution centers (DCs), manufacturing quantities, order dates, inventory policies, and transportation related decisions are very important for supply chain success. Information system employed for the supply chain is also a key in successful implementations. These decision problems need to be elaborated in detail. 

In Chap. 2, we dealt with topics in supply chain management. Supply chain management comprises decision making about facility location, production, transportation, and inventory control. Many companies employ optimization as a decision making tool. Here, we will introduce important and core optimization models and solution strategies for some important supply chain problems. 

They reveal that facility location problems mostly include inventory and production decisions as well while routing, transportation mode selection, and procurement integrated location decision problems receive less attention in the literature. Facility location decisions are strategic in supply chain design since a company supply chain will need to adapt to changing market needs migrating to new locations for example. They also state that most of the facility location studies consider minimization of costs as the objective. 

The book supply chain involves the printer, the wholesaler, the retail store, and the customer. Ownership of this supply chain is fragmented, with each entity s success based on different metrics. For printers to be competitive, they must have large-volume press runs that economize printing costs. Capacity decisions are made by retailer and wholesaler and determine the level of inventory and lead time to satisfy demand. Coordination between wholesaler and retailer depends on the flexibility offered for books to be returned from the retailer to the wholesaler. At the store level, competitiveness requires a large variety of books to be in stock, the flexibility for the customer to browse books before purchase, accessible locations, and other factors. The wholesaler has to be flexible to accommodate bookstore returns. The flexibility to return books provides the incentive for the bookstore to order efficient quantities from the supply chain. 

The retailers and manufacturers profits and supply chain profit for different lvalues are shown in Figure 5.4. In Figure 5.4, notice that the retailers expected profits are maximized 2xK= 15, as we calculated earlier. However, at that inventory level, the supply chain profit, which is the sum of manufacturers and retailers profits is 36.03, which is lower than the maximum supply chain profit obtained earlier. This is observed in Figure 5.4, which shows that the maximum supply chain profit is attained 21 K= 18, rather than at the inventory decision of 15 obtained in this case. 

This difference in supply chain profit arises because of double marginalization, i.e., the retailer does not see the supply chain margin associated with each sale realized or lost and thus makes inventory decisions that are lower than the supply chain optimal decisions (for service levels > 0.5). 

Perhaps it would help to view the decision from the perspective of the shipper. The shipper had to contend with the transport costs, inventory costs, other incidental costs as a total supply chain cost effect. Would it help if ABC enabled customers to evaluate the total supply chain cost of alternatives If salespeople for ABC Rail could get an idea of competitive total supply chain cost by customer route, then ABC could identify how to adjust schedules and decide the number of wagons to wait for in order to beat the competition. Such an approach, repeated over and over across customers, would generate a customer-responsive train freight schedule. ABC had heard of an initiative by Burlington Northern called ShipSmart, which offered a similar service to shippers. Should ABC Rail use such an approach ... 

Consider a retailer in location B who purchases product from a supplier in location A. Customer demand at location B is satisfied from stock at a warehouse at B. The retailer takes possession of goods at A and arranges transport, manages inventories and order placement, and so on. The retailer can choose any mode of transport to get product from A to B. How should the retailer take account of total supply chain costs in making this decision ... 

A study ([9]) described General Motors (GM) as carrying over 7.4 billion in inventory and incurring 4.1 billion in freight costs in 1984. The questions the study explores are the following How could this total supply chain cost be decreased Could the approach be used by decision makers throughout the GM system to impact supply chain costs and thus improve performance ... 

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