Supply chain management

BBA323 SUPPLY CHAIN MANAGEMENT Task brief & rubrics
Final Assesment

The task is individual
The deliverable has to be a report (of about 2,500 and 3,000 words)
The weight is equivalent to 60 %of the whole course
The report has to be delivered in Turnitin on 17th January 2020 at 23h 59 Harvard Referencing System has to be used.

Case: WE ARE THE BEST

We are the Best & Co. is a Company located near to Barcelona.
They manufacture and distribute computer screens.
The are producing 5 different models (screen sizes).
Sales volume of the different sizes during the last 3 years was as follows:

SIZE PERCENTAGE OF
ANNUAL SALES

10 5%
12 7%
15 45%
18 33%
24 10%

In order to assembly any model, 10 different components are required.
Six of these components are common two all models whereas the other four are specific for each size.

Profit and loss results of the last three years as well the forecasted one for 2018 are as follows:

MILLION EUROS 2016 2017 2018 2019
SALES 10 12 13,5 15
PURCHASING COMPONENTS 5 6,6 7,7 9
TRANSPORTATION COSTS 0,5 0,6 0,9 1,2
SALARIES 2 2,1 2,1 2,2
OTHER COSTS 0,4 0,4 0,5 0,6
GROSS PROFIT 2,1 2,3 2,3 2,0

The behavior of the available cash has been the following:

MIO. EUROS 2016 2017 2017 2018
CASH 1 0,8 0,7 0,5

“We are the Best” is selling the screens in Spain, France and Portugal .
Customers are big distribution Companies as well as wholesalers.

30% of the total sales are concentrated during the Christmas period.

Main customers in 2019 were (under brackets central warehouse)

• El Corte Inglés (Madrid): 5 Mio €
• Carrefour (Paris): 3,5 Mio €
• FNAC (Barcelona) : 3 Mio €
• The rest are 9 wholesalers/distributors located in Bilbao (2), Valencia (2), Zaragoza, Sevilla, Oporto (Portugal), Vigo and Bordeaux

(France).
All these customers bought less than 0,5 Mio € each.

There is also a huge potential customer (between 3 and 4 Mio € sales) located in Lisbon (Portugal). Big marketing and sales efforts have been
made trying to catch this customer.

“We are the best” has 4 warehouses: Barcelona (located in the factory), Madrid, Sevilla and Zaragoza.
Inventory of all manufactured products (sizes) is available in all warehouses.
Additionally, they always have safety stock of at least 20 days average sales of all products in the central warehouse.

The delivery time agreed with customers are 4 labor days.
Total time for assembly is 2 days.
Factory works from Monday to Friday.

Organization is as follows.
Owner/Managing Director: Joan Soler
Sales and Marketing Manager: Sonia González
Manufacturing and Purchasing : Raúl López
Logistics manager (Transportation and Warehousing): Rafael González
Financial Manager: Pilar Gómez

They have a Board of Directors meeting once a month. Everyone explains improvement and results in their area. Raul and Rafael are very good
friends. They work very closely. They think they shouldn´t need any sales department because “with only 3 main customers, Mr. Soler could
take care of them”. “Why do we need marketing if there are no new customers to discover.?”
“We give a good service. There are no stockouts and customers are satisfied with our quality.”

Although “We are the best” is the only computer screens manufacturer located in Spain, their market share in the Spanish market is 18%. Their
competitors are foreign Companies.
During last Board of Directors Sonia proposed she would like to work closely with Raúl and Rafael. She thought it would be a good idea to show
to customers the assembly process as well the warehousing facilities.

Rafael and Raúl considered customers didn´t need to visit them. “You are responsible for customers. You take care of them and you deal prices
with them. But this is not our business”.

By the other side, Pilar is really concerned because their cash needs are increasing and, as the working capital has been growing the last 3 years
(mainly final products inventories), she has problems to fulfill the financial and cash requirements for running the daily activity.

Mr. Soler decided he should need a Managing Director with new ideas. Her older daughter, Marta, recently graduated at the EU Business
School at Barcelona, took this position and joined the Company 2 weeks ago and during his first Board of Directors, he said: “We must build an
efficient supply chain organization, to improve our customer service and to increase profits”.

Sonia is really excited about this proposal but Raúl and Rafael consider things are running good enough. “The only thing we need to increase
profits is to increase sales prices!!!! said Rafael”.
Marta Sole has appointed you to provide a report assessing the company situation in the following areas/activities.

• Transportation strategy
• Warehousing location
• Supply range optimization
• Manufactured components (possible optimization)
• Overall marketing/sales strategy
• Internal Organization
• Any other strategical/functional issue you consider

She is requesting you to specifically evaluate the strengths and weaknesses of the supply chain, and determine the improvements to be
applied. These are the main aspects she wants to have elucidated:
1. Critical evaluation of the current marketing/sales strategy.
2. Determine if manufactured components could be optimized, and, in such case, what actions would have to be taken, and what would

be the resulting optimization.
3. Analyze if the current supply range is optimal, and propose changes and/or improvements.

4. Assess warehousing location and its appropriateness.
5. Define pros and cons of the current transportation strategy and elaborate recommendations.
6. Is internal organization adapted to the main objective stated by M. Sole: “We must build an efficient supply chain organization, to

improve our customer service and to increase profits”. Critically discuss this point.
7. Provide a summary of the main actions to be undertaking to achieve M. Sole strategic objective.

Exceptional
90-100

Good
80-89

Fair
70-79

Fail
<70

Knowledge &
understanding

(20%)

Student demonstrates clear
understanding of the Supply Chain
Management concepts involved in
the discussion questions; Provide
relevant examples from Corporate
world to establish a connection
between practice and theory; Free
of grammatical or stylistic errors

Student demonstrates fair
understanding of the Supply Chain
Management concepts involved in
the discussion questions; Provide
few examples from Corporate world
to establish a connection between
practice and theory; Few
grammatical or stylistic errors.

Student demonstrates few, if any
new ideas or connections;
summarize other postings; Several
grammatical or stylistic errors.

Student demonstrates little or no
awareness of key concepts required
in the discussion questions; Obvious
grammatical or stylistic errors

Critical
evaluation

(30%)

Student comments significantly
add to the learning process;
demonstrates higher level of
critical thinking-analysis,
synthesis& evaluation.

Student comments add to the
learning process; demonstrates
moderate level of critical thinking
analysis, synthesis& evaluation.

Generally competent; information is
average doesn’t add to the
continuous learning process;
grammatical or stylistic errors
interfere with the content.

No new ideas are presented; Usually
have “I agree with…” statement;
makes understanding impossible.

Written
Communication
(20%)

Student communicates their ideas
extremely clearly and concisely.
Able to connect theory with the
case study, comments are
focused and concise.

Student communicates their ideas
clearly and concisely.
Able to connect with the case study
but lack depth and/or detail.

Student communicates their ideas
with some clarity and concision.
Limited, if any connections with the
case study; vague generalities

Student fails to communicate their
ideas clearly and concisely. No
connections are generated between
theory and the case study; comments
are off topic

Synthesis
(30%)

Student synthesizes the content of
their writing with exceptional
clarity and concision

Student synthesizes the content of
their writing with some clarity and
concision

Student synthesizes the content of
their writing, although work lacks
clarity and/or concision

Student makes an insufficient
attempt to synthesize, with a lack of
clarity and concision.

SUPPLY CHAIN MANAGEMENT

Session 9
Warehousing

Barcelona, Fall 2018

Luis J. Díaz. Industrial Engineer. M.B.A.

Inventory storage is justified on the basis of cost and service.
The focus on warehousing shifted from passive storage to strategic assortment. The term distribution center became widely used throughout industry to capture this dynamic aspect of traditional warehousing. Strategic warehousing serves to satisfy requirements related to local presence. A network of strategically located warehouses provide key customers the perception they will be logistically supported.
SUPPLY CHAIN MANAGEMENT
WAREHOUSING

Economic benefits of warehousing occur when overall logistics costs are reduced. Four basic economic benefits are:
Consolidation and break bulk
Sorting
Seasonal storage
Reverse logistics
The economics benefits of CONSOLIDATION AND BREAK BULK are to reduce transportation costs by using warehouse capability to group shipments. In consolidation, the warehouse receives materials , from a number of sources , hat are combined in exact quantities int a large single shipments to a specific destination.
SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (1)

The benefits of consolidations are the realization of the lowest possible freight rate , timely and controlled delivery, and reduced congestion at a customer´s receiving dock.
A break bulk operation receives a single large shipment and arranges for delivery to multiple destinations.
The basic benefit of SORTING is to reconfigure freight as it flows from origin to destination. Three types of assortment are widely performed in logistical systems.
The objective of cross-docking is to combine inventory from multiple origins into a prespecified assortment for a specific customer. Cross docking requires precise on time delivert from each manufacturer. The high degree of precision required makes operation highly dependent on information technology.
SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (2)

Mixing Is usually performed at an intermediate location between shipment origin and destination. Truckloads of products are shipped from origin to missing warehouse. Upon arrival at the mixing warehouse , shipments are unloaded and sorted into the combination desired by each customer. During the mixing process , inbound products cab be combined with others regularly stocked at a warehouse.
The objective of assembly is to support manufacturing operations. Products and components are assembled from a variety of second tier suppliers by a warehouse often referred as lead suppliers or tier one suppliers located in close proximity to the manufacturing plant
SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (3)

REVERSE LOGISTIC includes following activities;
Returns management
Remanufacturing
Remarketing
Recycling
Disposal.
Returns Management is designed to facilitate the reverse flow of product that did not sell .
Remanufacturing facilitates the reverse flow of product following it s useful life. The product or components are updated for sale at a discounted price..

SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (4)
REVERSE LOGISTIC

Remarketers use coordination and reverse flow to position and resell product when the orginal user no longer needs it.
Recycling returns product following its useful life with the objective to decomposing it to its component materials so that they can be effectively used.
When material cannot be reused it is required to dispose ii in the appropriate landfill

SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (5)
REVERSE LOGISTIC

Spot Stocking
Manufacturers of highly seasonal products often spot stock. Instead of maintaining inventory in a warehouse year-round or shipping to customers direct from manufacturing plants , responsiveness in peak selling periods can be enhanced through temporary. inventory positioning in strategic markets.
Full Line Stocking.
The traditional use of warehouses by manufactures, wholesalrd ans retailers is to stock product inventory in anticipation of customer orders. The difference between spot stocking and full line stock is the degree and duration of warehouse utilization.
Value-added Services
The demand for highly customized service has transformed warehouses into facilities that specialize in performing value added services

SUPPLY CHAIN MANAGEMENT
SERVICE BENEFITS

Warehouses are typically classified based on ownership. A private warehouse is operated by the enterprise that owns the merchandise handled and stored in the facility. A public warehouse , in contrast, is operated as an independent business offering a range of hire services as storage, handling and transportation.
Contract warehousing ,which is a customized extension of public warehousing , combines the benfits of private and for hire warehousing
PRIVATE
The major benefits of private warehousing are control, flexibility , cost and range of intangible.
Usually offer more flexibility since operating policies, hours and procedures can be adjusted to meet specific customer requirements.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (1)

Private warehouses are usually considered less costly than public warehousing because private facites are not operated for a profit.
Private warehousing may offer intangible benefits. The firm´s sign on its sign may stimulate customer perceptions.
The use of private warehousing is declining because if an increasing managerial interest in reducing capital invested in logistical assets.
PUBLIC
Public warehouses offer a combination of services .Provide flexibility and shared services benefits. They have the potential to offer operating and management expertise since warehousing is their core business.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (2)

10

From a financial perspective, warehousing may be able to achieve lower operation cost than private facilities.
Also offer flexibility concerning size and number of warehouses , allowing users to respond to supplier, customer and seasonal demands.
Public warehousing can also have the potential to share scale economies since the combined requirements of users can be leverage.
CONTRACT
Contract warehousing combines characteristics of private and public operations. A long-term contractual relationship wil typically result in lower total cost than a public warehouse. At the same time, contract operations can provide benefits of expertise , flexibility, scalability and economies of scale by sharing management labor, equipment and information resources across multiple clients.
SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (3)

11

Contract warehouses typically offer a range of logistical services such a transportation management, inventory control, order processing, customer service, and return merchandise processing.
Contract logistic firms, called integrated service providers (ISP), are capable of performing the the total logistics responsibility for an enterprise.
SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (4)

12

THANK YOU!

SUPPLY CHAIN MANAGEMENT

Session 8
Transportation Management
Incoterms

Barcelona, Fall 2018

Luis J. Díaz. Industrial Engineer. M.B.A.

Transportation is the
largest element of
logistics cost….
–60% of a typical firm´s

logistics expenditures

SUPPLY CHAIN MANAGEMENT
TRANSPORTATION MANAGEMENT

Factors which influence rates:
ØDistance: Major influence on
transportation cost. There are fixed costs
associated with shipment pick up and
delivery.
ØWeight: Transport cost per unit of weight
decreases as load size increases.
ØDensity: Combination of weight and
volume. Vehicles are more constrained by
cubic capacity than by weight.

SUPPLY CHAIN MANAGEMENT
TRANSPORTATION MANAGEMENT
ECONOMIC DRIVERS

Basic document utilized in purchasing
transport services. In case of loss,

damage or delay, the bill of lading is
the basis for damage claims.

Information contained on the bill of
lading determines all responsibiities

related to timing and ownership.

SUPPLY CHAIN MANAGEMENT
TRANSPORTATION MANAGEMENT
BILL OF LADING

Incoterms are international rules that are
accepted by governments, legal
authorities and practitioners worldwide
for the interpretation of the most
commonly used terms in international
trade. They either reduce or remove
altogether uncertainties arising from
differing interpretations of such terms in
different countries

SUPPLY CHAIN MANAGEMENT
INCOTERMS. INTRODUCTION

The scope of Incoterms is limited to
matters relating to the rights and
obligations of the parties to the contract
of sale with respect to the delivery of
goods sold, but excluding “intangibles”
like computer software.
Each Incoterm is referred to by a
three-letter abbreviation

SUPPLY CHAIN MANAGEMENT
INCOTERMS. MAIN CONCEPTS

All Incoterms include a ‘named place’,
which is extremely important to in the
agreement. If the terms are EXW or FCA,
the named place is the loading location.
For FAS and FOB, it is the port of
loading, while for CFR and CIF, it is the
destination port. For CIP, DDU and DDP
the final delivery address is the named
place.

SUPPLY CHAIN MANAGEMENT
INCOTERMS. MAIN CONCEPTS

EXW EX WORKS (named place)*

FCA FREE CARRIER (named place)

FAS FREE ALONGSIDE SHIP (named port of shipment)*

FOB FREE ON BOARD (named port of shipment)

CFR COST AND FREIGHT (named port of destination)

CIF COST, INSURANCE AND FREIGHT (named port of destination)*

CPT CARRIAGE PAID TO (named place of destination)

CIP CARRIAGE AND INSURANCE PAID TO (named place of destination)*

DAF DELIVERED AT FRONTIER (named place)*

DES DELIVERED EX SHIP (named port of destination)

DEQ DELIVERED EX QUAY (named port of destination)*

DDU DELIVERED DUTY UNPAID (named place of destination)*

DDP DELIVERED DUTY PAID (named place of destination

SUPPLY CHAIN MANAGEMENT
INCOTERMS. LIST

ØEXW (Ex Works)
The seller is not obliged to load the goods into
the truck or container, nor does it oblige the
seller to fulfil the necessary export customs
formalities.
ØFCA (Free Carrier)
The seller/exporter is responsible for loading
the goods and providing export documentation.

ØFAS (Free Alongside Ship)
The seller delivers the goods, cleared for export,
at a named port of shipment. The buyer pays for
the THC incurred at the terminal

SUPPLY CHAIN MANAGEMENT
DESCRIPTION

ØFOB (Free On Board)
The seller clears the good for export, and pays for the
THC at a named port

ØCFR (Cost And Freight)
The seller pays for the main carriage of good to named
destination port, but the buyer is liable for loss and
damage during transportation and should be properly
insured.

ØCIF (Cost, Insurance and Freight)
The seller has to provide marine insurance against the
buyer’s risk of loss and damage during transportation

SUPPLY CHAIN MANAGEMENT
DESCRIPTION

ØDDU (Delivered Duty Unpaid)
Buyer pays for duties and customs clearance.

ØDDP (Delivered Duty Paid)
Seller pays both duties and customs clearance

SUPPLY CHAIN MANAGEMENT
DESCRIPTION

THANK YOU!

SUPPLY CHAIN MANAGEMENT

Session 7
Warehousing

Barcelona, Fall 2018

Luis J. Díaz. Industrial Engineer. M.B.A.

Inventory storage is justified on the basis of cost and service.
The focus on warehousing shifted from passive storage to
strategic assortment. The term distribution center became
widely used throughout industry to capture this dynamic
aspect of traditional warehousing. Strategic warehousing
serves to satisfy requirements related to local presence. A
network of strategically located warehouses provide key
customers the perception they will be logistically supported.

SUPPLY CHAIN MANAGEMENT

WAREHOUSING

Economic benefits of warehousing occur when overall logistics
costs are reduced. Four basic economic benefits are:

• Consolidation and break bulk
• Sorting
• Seasonal storage
• Reverse logistics

The economics benefits of CONSOLIDATION AND BREAK
BULK are to reduce transportation costs by using warehouse
capability to group shipments. In consolidation, the warehouse
receives materials , from a number of sources , hat are
combined in exact quantities int a large single shipments to a
specific destination.

SUPPLY CHAIN MANAGEMENT

ECONOMIC BENEFITS (1)

The benefits of consolidations are the realization of the lowest
possible freight rate , timely and controlled delivery, and
reduced congestion at a customer´s receiving dock.
A break bulk operation receives a single large shipment and
arranges for delivery to multiple destinations.

The basic benefit of SORTING is to reconfigure freight as it
flows from origin to destination. Three types of assortment are
widely performed in logistical systems.

The objective of cross-docking is to combine inventory from
multiple origins into a prespecified assortment for a specific
customer. Cross docking requires precise on time delivert from
each manufacturer. The high degree of precision required
makes operation highly dependent on information technology.

SUPPLY CHAIN MANAGEMENT

ECONOMIC BENEFITS (2)

Mixing Is usually performed at an intermediate location
between shipment origin and destination. Truckloads of
products are shipped from origin to missing warehouse. Upon
arrival at the mixing warehouse , shipments are unloaded and
sorted into the combination desired by each customer. During
the mixing process , inbound products cab be combined with
others regularly stocked at a warehouse.

The objective of assembly is to support manufacturing
operations. Products and components are assembled from a
variety of second tier suppliers by a warehouse often referred
as lead suppliers or tier one suppliers located in close
proximity to the manufacturing plant

SUPPLY CHAIN MANAGEMENT

ECONOMIC BENEFITS (3)

REVERSE LOGISTIC includes following activities;
1. Returns management
2. Remanufacturing
3. Remarketing
4. Recycling
5. Disposal.

Returns Management is designed to facilitate the reverse
flow of product that did not sell .

Remanufacturing facilitates the reverse flow of product
following it s useful life. The product or components are
updated for sale at a discounted price..

SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (4)
REVERSE LOGISTIC

Remarketers use coordination and reverse flow to position
and resell product when the orginal user no longer needs it.

Recycling returns product following its useful life with the
objective to decomposing it to its component materials so that
they can be effectively used.

When material cannot be reused it is required to dispose ii in
the appropriate landfill

SUPPLY CHAIN MANAGEMENT
ECONOMIC BENEFITS (5)
REVERSE LOGISTIC

• Spot Stocking
Manufacturers of highly seasonal products often spot
stock. Instead of maintaining inventory in a warehouse
year-round or shipping to customers direct from
manufacturing plants , responsiveness in peak selling
periods can be enhanced through temporary. inventory
positioning in strategic markets.

• Full Line Stocking.
The traditional use of warehouses by manufactures,
wholesalrd ans retailers is to stock product inventory in
anticipation of customer orders. The difference between
spot stocking and full line stock is the degree and duration
of warehouse utilization.

• Value-added Services
The demand for highly customized service has transformed
warehouses into facilities that specialize in performing
value added services

SUPPLY CHAIN MANAGEMENT
SERVICE BENEFITS

Warehouses are typically classified based on ownership. A
private warehouse is operated by the enterprise that owns
the merchandise handled and stored in the facility. A public
warehouse , in contrast, is operated as an independent
business offering a range of hire services as storage, handling
and transportation.
Contract warehousing ,which is a customized extension of
public warehousing , combines the benfits of private and for
hire warehousing

PRIVATE
The major benefits of private warehousing are control,
flexibility , cost and range of intangible.
Usually offer more flexibility since operating policies, hours
and procedures can be adjusted to meet specific customer
requirements.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (1)

Private warehouses are usually considered less costly than
public warehousing because private facites are not operated
for a profit.
Private warehousing may offer intangible benefits. The firm´s
sign on its sign may stimulate customer perceptions.
The use of private warehousing is declining because if an
increasing managerial interest in reducing capital invested in
logistical assets.

PUBLIC
Public warehouses offer a combination of services .Provide
flexibility and shared services benefits. They have the potential
to offer operating and management expertise since
warehousing is their core business.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (2)

From a financial perspective, warehousing may be able to
achieve lower operation cost than private facilities.
Also offer flexibility concerning size and number of
warehouses , allowing users to respond to supplier, customer
and seasonal demands.
Public warehousing can also have the potential to share scale
economies since the combined requirements of users can be
leverage.

CONTRACT
Contract warehousing combines characteristics of private and
public operations. A long-term contractual relationship wil
typically result in lower total cost than a public warehouse. At
the same time, contract operations can provide benefits of
expertise , flexibility, scalability and economies of scale by
sharing management labor, equipment and information
resources across multiple clients.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (3)

Contract warehouses typically offer a range of logistical
services such a transportation management, inventory control,
order processing, customer service, and return merchandise
processing.
Contract logistic firms, called integrated service providers
(ISP), are capable of performing the the total logistics
responsibility for an enterprise.

SUPPLY CHAIN MANAGEMENT
WAREHOUSE OWNERSHIP ARRANGEMENTS (4)

THANK YOU!

SUPPLY CHAIN MANAGEMENT

Session 6
Inventory Management

Barcelona, Fall 2018

Luis J. Díaz. Industrial Engineer. M.B.A.

ØInventory Management is risky.
ØManufacturer:

ü Raw materials
ü Component parts
ü Work in process
ü Finished goods

ØWholesaler: Buys large quantitites from
manufacturers and sells smaller quantities to
retailers
ØRetailers: Purchase a wide variety of products.

ØInventory turnover: Ratio of sales for a time
period divided by average inventory.

SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT
MAIN CONCEPTS

ØINVENTORY POLICY: What to purchase or
manufacture, when to take action and in what
quantity.
ØAVERAGE INVENTORY (*): The materials,
work in process and finished product tipically
stocked in the logistical system are referred to as
average inventory.
ØSAFETY STOCK: S.S is mantained in a
logistical system to protect against demand and
performance cycle uncertainty.

SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT
MAIN CONCEPTS

ØAVERAGE INVENTORY IS ONE HALF
ORDER QUANTITY PLUS SAFETY STOCK.
ØREORDER POINT
ØECONOMIC ORDER QUANTITY MODEL
(EOQ):
Balancing the cost of ordering and the cost of
maintaining average inventory

SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT
MAIN CONCEPTS

ICC is the expense associated with maintaining
inventory: Annual inventory carrying cost
percent multiplied by average inventory value

Ø Capital: Cost of money markets
Ø Insurance: Based upon estimated risk or

loss over time
Ø Obsolescence: Deterioration of product

during storage.
Ø Storage: Product holding (not related with

inventory value)

SUPPLY CHAIN MANAGEMENT
INVENTORY CARRYING COST

HOW MUCH TO ORDER: The point at which the sum
of ordering and carrying cost is minimized represents the
total lowest cost.

E.O.Q.. (ECONOMIC ORDER QUANTITY)
– Assumptions:

§ All demand is satisfied
§ Rate of demand is continuous, constant and

known
§ Replenishment peformance cycle time is

constant and known
§ There is a constant price of product

independent on order quantity
§ No inventory in transit
§ No limit on capital

– EOQ Adjustments
§ Volume transportation rates
§ Quantity discounts

SUPPLY CHAIN MANAGEMENT
PLANNING INVENTORY

INVENTORY CONTROL.
How often inventory levels are reviewed to
determine when and how much to order.
Perpetual review: ROP = D x T +SS where

üROP : Reorder point in units
üD: Average daily demand in units
üT: Average performance cycle length

in days
üSS: Safety stock in units

SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT POLICIES

SUPPLY CHAIN MANAGEMENT
INVENTORY CONTROL

WHEN TO ORDER
R= D x T where:
•R: reorder point
•D: average daily demand
•T: Average performance cycle length in days

R = D x T + SS where
•SS: Safety stock in units

SUPPLY CHAIN MANAGEMENT
INVENTORY CONTROL

Periodic review: ROP = D(T + P/2) + SS
where P = Review period in days

Periodic control systems requiere larger average
inventories than pepetual systems

SUPPLY CHAIN MANAGEMENT
INVENTORY MANAGEMENT: M.R.P.

REQUIREMENTS PLANNING (MRP)
(SEE EXAMPLE)

The depth is a reflection of the total number of pieces
in the stocking inventory.

Inventory risk is the chance that companies won’t be
able to sell its goods supply or that there will be a
decrease in value

The width is reflected in the total of individual stocking
part numbers in the inventory.

SUPPLY CHAIN MANAGEMENT
OTHER INVENTORY CONCEPTS

THANK YOU!

ABC

CLASSIFICATION

AVERAGE STOCK INVENTORY
TURNOVER

RANGE INVENTORY
CONTROL
METHOD

A PERPETUAL

B

PERIODIC
(SHORT
PERIOD)

C PERIODIC
(LONG PERIOD)

HIGH RISK

MEDIUM RISK

LOW RISK