Supply Chain Management: Presented by

Supply Chain Management
Presented by:
Anoop.C.S
S3 MBA
Inventory Policy
 Inventory Policy is an important constituent of inventory
framework which deals with inventory policy guidelines
and inventory management strategy.
Guidelines
 Inventory policy guidelines provide answers to questions like
what to purchase or manufacture, when to take action and in
what quantity.
 It helps in taking decisions regarding inventory positioning and
placement at plants and distribution centers.
 It helps companies to postpone positioning of inventory by
maintaining stock at the plant or they may decide to place more
products in local distribution centers to have it closer to the
market.
Inventory Management Strategies:
1. Manage inventory at each distribution centre,
independently.
2. Consider inventory interdependence across distribution
sites by managing inventory, centrally.
3. Ensure more coordination and communication in case of
centralized management.
Inventory Characteristics
 Investments for inventory cannot be used to obtain other
goods or assets that could improve enterprise
performance.
 Funds supporting inventory investments are borrowed,
increasing the firm’s interest expense.
 There is always a possibility that the product may get
pilfered or become obsolete.
a. Manufacturing Inventory : The commitments starts with
raw materials and component parts, including work-in-
process, and ends with finished goods. Manufacturer
needs to transfer the finished goods inventory to
warehouse in closer proximity to wholesalers and
retailers.
b. Wholesale Inventory : The wholesaler purchases large
quantities from manufacturers and sells small quantities
to retailers in order to provide retail customers with
assorted merchandise from different manufacturers in
smaller quantities.
In case of seasonal goods, the wholesaler is forced to
commit inventory, far in advance of selling, thus
increasing the depth & duration of risk.
c. Retail Inventory: Retailer purchases a wide variety of products and in
smaller quantities and assumes a substantial risk in marketing
process. Retailer inventory risk is wide but not deep. Emphasis is more
on inventory turnover. Turnover measures inventory velocity. It is
calculated as the ratio of annual sales divided by average inventory.
Faced with the wide inventory, retailers attempt to reduce risk by
pressing manufacturers and wholesalers to assume greater and
greater inventory responsibility, thereby resulting into pushing the
inventory back in the marketing channel. Thus retailers demand for
faster delivery of mixed product shipments from wholesales and
manufacturers.
There are two methods for inventory planning:
1. Fair Share Allocation.
2. Distribution Requirement Planning (DRP)
It is a simplified inventory management planning method
that provides each distribution facility with an equitable
or fair share of available inventory from a common source
such as a plant warehouse.
Using fair share allocation rules, the inventory manager
determines the amount of inventory that can be allocated
to each distribution centre from the available inventory at
the plant warehouse.
DS = A + Ij / Dj where
DS = no. of days supply for distribution centre inventories.
A = inventory units to be allocated from the warehouse
Ij = inventory in units for distribution center j.
Dj = daily demand for distribution center j.
The amount to be allocated to each distribution center is determined as;
Aj = (DS – Ij / Dj * Dj ) where
Aj = amount allocated to distribution centre j.
DS = number of days supply that each distribution center is brought up.
Ij = inventory in units for distribution center j. Dj = daily demand
 DRP is a logical extension of manufacturing requirement planning (MRP).
 MRP is determined by a production schedule that can be controlled by the
enterprise and generally operates in a dependent demand situation.
 MRP coordinates the scheduling and integration of materials into finished
products.
 DRP is guided by customer demand, which is not controllable by the
enterprise and operates in an independent environment where uncertain
customer demand determines inventories requirement.
 DRP takes over the responsibility of coordination once the finished goods
are received in the plant warehouse.
 A DRP system integrates finished goods, work –in- process, and material
planning.
 DRP provides for a schedules for each SKU and each distribution facility.
 Schedules for the same SKU are integrated to determine the over all
requirement for replenishing inventory such as plant warehouse.
PLANT WAREHOUSE REGIONAL WAREHOUSE
DISTRIBUTION CENTRE
CUSTOMER
Schedule Report of DRP
 The schedule report consists of current on hand balance, safety stock, performance cycle
length and order quantity.
 For each planning period, the schedule will report the following:
1. Gross requirements: reflecting demands from customers and other distribution facilities
supplied by the site under review.
2. Schedule receipts: are replenishment shipments planned for arrival at the distribution
centre.
3. Project on hand delivery: refers to anticipated week – ending level.
4. Project on hand inventory: prior week’s on hand inventory - current week’s gross
requirement + scheduled receipts.
Marketing Benefits:
1. Improved service levels that increase on- time deliveries and decrease customer
complains.
2. Improved and more effective promotional and new product introduction plant.
3. Improved ability to anticipate shortages so that marketing efforts are not

expended on products with low stock.
4. Improved inventory coordination with other functions in the enterprise.
5. Enhanced ability to offer customers a coordinated inventory management

services.
Logistical benefits
1. Reduced distribution centre freight costs resulting from coordinated shipments.
2. Reduced inventory levels, since DRP can accurately determine what products are
needed and when.
3. Reduced warehouse space requirements because of inventory reductions.
4. Improved inventory visibility and coordination between logistics and

manufacturing.
5. Better budgeting since DRP can simulate inventory and transportation
requirements.
1. Cross Docking:
o Traditional warehouse moves materials into stores, keeps
them till they are needed and then move them out to
meet customer demand.

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3. Improved ability to anticipate shortages so that marketing efforts are not

5. Enhanced ability to offer customers a coordinated inventory management

4. Improved inventory visibility and coordination between logistics and

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