Best Practices in Inventory Management: Safety Stocks & Demand Analysis
Discover Dr. Tony Wild's expertise in inventory management through insights on safety stocks, demand history, availability, and deviation measurement techniques. Gain valuable knowledge on optimizing stock levels for improved customer service and efficiency.
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Presentation Transcript
Chapter 7 Safety stocks Dr Tony Wild Best Practice in Inventory Management
Figure 7.1 Item T15 Demand History Figure 7.1 Item T15 Demand History Week Demand 1 2 23 36 27 19 34 25 41 15 39 33 27 48 31 39 28 3 4 5 6 7 8 9 10 11 12 13 14 15 Dr Tony Wild Best Practice in Inventory Management
Figure 7.2 Demand distribution Dr Tony Wild Best Practice in Inventory Management
Figure 7.3 Normal distribution curve Dr Tony Wild Best Practice in Inventory Management
Figure 7.4 Availability of a Stock Item 100% Availability (Customer service) for each stock item 0% Stock Value For each item; the higher the stock, the better the availability When service is poor, there is a large improvement in availability for a small investment However, to give very good service requires a disproportionate increase in investment. s
Figure 7.5 Item T26 Demand History Week Demand 1 3 2 3 0 135 4 5 7 6 7 3 8 9 10 0 11 17 12 54 120 13 14 2 15 12 10 19 70 13 Dr Tony Wild Best Practice in Inventory Management
Figure 7.6 Stock and Availability 100% 90% 80% AVAILABILITY 70% 60% 50% 40% 30% 20% 10% 0% -3 -2.4 -1.8 -1.2 -0.6 0 0.6 1.2 1.8 2.4 3 VARIATION FROM AVERAGE Dr Tony Wild Best Practice in Inventory Management
Figure 7.7 Summary of Deviation Measurement Techniques Historical evaluation Technique Stock Cover MAD SD Smoothed MAD Assessment Relative Quality 1 10 11 25 Only For the Amateur Gives poor service and excess stock Simple to Understand and Use Good in most situations Universal Technique Should give good results Better results Beneficial when style of demand changes Easy to setup and calculate Smoothed variances Good technique May overstate influence of outliers 25 Dr Tony Wild Best Practice in Inventory Management
Figure 7.8 Customer service factors Desired Service Level (% Periods without Stockout) 50 75 79 80 84.13 85 90 94.52 95 99 99.18 99.5 99.93 99.99 Multiply MAD by Multiply SD by 0 0 0.67 0.8 0.84 1 1.04 1.28 1.6 1.65 2.33 2.4 2.57 3.2 4 0.84 1 1.05 1.25 1.3 1.6 2 2.06 2.91 3 3.2 4 5 Dr Tony Wild Best Practice in Inventory Management
Figure 7.9 Stock Record Sheet Week number Variation (Error) Delivery Quantity Safety stock cover needed Demand Stock 200 197 187 187 52 138 119 209 139 126 126 202 148 28 26 107 0 0 0 0 1 2 3 4 5 6 7 8 9 3 -28 -21 -31 104 -24 -12 -28 39 -18 -31 -14 23 89 -29 -19 34 10 0 135 Order Order 42 0 0 0 0 0 0 0 0 66 68 0 7 93 19 3 70 13 0 17 54 120 93 Order 10 11 12 13 14 15 Av 93 Order 2 12 31 93
Figure 7.10 Effect of Supply Lead Time on Safety Stocks Supply Lead Time 1 day 1 week 2 weeks 1 month 3 months 6 months 1 year Relative Supply Lead Time Relative safety stock 0.2 1 2 4.2 13 26 52 0.45 1 1.41 2.05 3.61 5.10 7.21
Figure 7.11 Definition of excess and obsolete stock Excess Working inventory Obsolete Number of weeks (cover) of inventory Number of weeks since last movement
Key Points Safety inventory compensates for unknown demand Supply problems should be removed, not buffered Demand can be split into Average Variability Variability (safety stock) should be calculated using MAD (or SD) but not estimated Customer service factors should be used to decide the level of availability Obsolete and excess items should be identified and managed. Dr Tony Wild Best Practice in Inventory Management
