Page 173 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Logistics and Supply Chain Management

Notes  Decoupling processes permit each product to be manufactured and distributed in
economical lot sizes that are greater than market demands.
 The safety stock or buffer stock function concerns short-range variation in either demand
or replenishment.
 Safety stock protects against two types of uncertainty.
 Inventory is the major source of cost in the supply chain and also the basis for improving
customer service and enhancing customer satisfaction.

 Average inventory is defined as half the batch size plus safety stock.
 One major component of cost associated with inventory is the cost of replenishing it.
 Ordering costs are incurred in the purchase cycle, while set-up costs are incurred in the
manufacturing cycle.
 The reorder point determines when a re-supply shipment should be initiated.
 Global optimization is made even more difficult because supply chains need to be designed
for, and operated in, uncertain environments, thus creating sometimes enormous risks to
the organization.
 Business owners and managers focus on this activity because inventory typically represents
the second largest expenditure in a company behind payroll.
 An integrated inventory management strategy defines the policies and process used to
determine where to place inventory, when to initiate replenishment shipments, and how
much to allocate.

7.8 Keywords

Average Inventory: It is defined as half the batch size plus safety stock.
Decoupling Processes: It permit each product to be manufactured and distributed in economical
lot sizes that are greater than market demands.
Economic Order Quantity (EOQ): It is the replenishment order quantity that minimizes the
combined cost of inventory maintenance and ordering.

Excess Inventory: It is a cost burden to industry in terms of capital tied up, the cost of obsolescence
and the cost of servicing product in the supply chain.
Inventory Costs: Costs associated with the maintenance of inventory.

Inventory Management: It is the process that implements inventory policy.
Inventory Ordering Costs: These are those costs that are incurred in the purchase cycle are called
procurement costs or inventory ordering costs.

Inventory: Stocking of raw materials, in-process, finished, packaging, tools and equipments,
spares and others in order to meet an expected demand or distribution in future.
Ordering Costs: These are incurred in the purchase cycle, while set-up costs are incurred in the
manufacturing cycle.
Period Order Quantity (POQ): A term used when ordering raw materials or supplies in lots
based on the quantity that will be used over a given time period or series of periods.
Production Lot Size: It refers to the most economical quantities from a manufacturing perspective.

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