At the end of this lecture, students should be able to define inventory, understand the various types of inventory, understand the reasons for keeping inventory, understand the inventory models (EOQ, POQ, QD). | 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 25 1 8-2 CR (2004) Prentice Hall, Inc. Actions When Forecasting is Not Appropriate Seek information directly from customers Collaborate with other channel members Apply forecasting methods with caution (may work where forecast accuracy is not critical) Delay supply response until demand becomes clear Shift demand to other periods for better supply response Develop quick response and flexible supply systems 8-3 CR (2004) Prentice Hall, Inc. Managing Highly Uncertain Demand Delay forecasting as long as possible Prioritize supply by product’s degree of uncertainty (supply to the more certain products first) Apply the principle of postponement to the most uncertain products (delay committing to a final product form until an order is received) Create flexible supply to changing demand (alter capacity and output rates through subcontracting, computer technology, multi-purpose processes, etc.) Be able to respond quickly to . | 1-1 Logistics Management LSM 730 Dr. Khurrum S. Mughal Lecture 25 1 8-2 CR (2004) Prentice Hall, Inc. Actions When Forecasting is Not Appropriate Seek information directly from customers Collaborate with other channel members Apply forecasting methods with caution (may work where forecast accuracy is not critical) Delay supply response until demand becomes clear Shift demand to other periods for better supply response Develop quick response and flexible supply systems 8-3 CR (2004) Prentice Hall, Inc. Managing Highly Uncertain Demand Delay forecasting as long as possible Prioritize supply by product’s degree of uncertainty (supply to the more certain products first) Apply the principle of postponement to the most uncertain products (delay committing to a final product form until an order is received) Create flexible supply to changing demand (alter capacity and output rates through subcontracting, computer technology, multi-purpose processes, etc.) Be able to respond quickly to uncertain demand levels 9-4 Reasons for Inventories Improve customer service Provides immediacy in product availability Encourage production, purchase, and transportation economies Allows for long production runs (buffer against demand fluctuations) Takes advantage of price-quantity discounts Allows for transport economies from larger shipment sizes Act as a hedge against price changes Allows purchasing to take place under most favorable price terms Protect against uncertainties in demand Provides a measure of safety to keep operations running when demand levels and lead times cannot be known for sure Act as a hedge against contingencies Buffers against such events as strikes, fires, and disruptions in supply 9-5 CR (2004) Prentice Hall, Inc. Reasons Against Inventories They consume capital resources that might be put to better use elsewhere in the firm They too often mask quality problems that would more immediately be solved without their presence They divert management’s attention away .
