MANAGING UNCERTAINTY IN THE SUPPLY CHAIN

1
MANAGING UNCERTAINTY IN THE SUPPLY CHAIN

• Safety Inventory

2
AGENDA

• INTRODUCTION (8.1)
• DETERMINING APPROPRIATE LEVEL (8.2)
• SUPPLY CHAIN UNCERTAINTY (8.3)
• AGGREGATION (8.4)

3
AGENDA

• REPLENISHMENT (8.5)
• ESTIMATING IN PRACTICE (8.6)
• SUMMARY AND CONCLUSIONS (8.7)

4
INTRODUCTION

• Variability
• Demand
• Vendor Delivery
• Completeness of order
• Defects
• Loss and damage
• Order Cycle Time

5
INTRODUCTION

• Tradeoffs
• Sales (at the margin)
• Increased holding costs

6
INTRODUCTION
7
INTRODUCTION

• Two Key Questions
• Appropriate Level
• Improve Availability

8
AGENDA

• DETERMINING APPROPRIATE LEVEL (8.2)

9
APPROPRIATE LEVEL

• Two factors
• Uncertainty of demand
• Desired level of product availability
• Customer service level
• CSL

10
APPROPRIATE LEVEL
11
APPROPRIATE LEVEL
12
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Forecasting
• Predict Systematic
• Estimate Random

13
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Gap between order and receipt (L)
• Exposure during L
• Demand
• Inventory

14
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Variable Definitions

15
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Demand
• Normally distributed
• Mean of P
• Standard deviation of O

16
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Demand

17
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Where Covariance

18
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Demand Normal Independent

19
APPROPRIATE LEVEL

• Measuring Demand Uncertainty
• Lead Time
• Coefficient of Variation

20
APPROPRIATE LEVEL

• Replenishment Policies
• Q models
• Fixed q, variable p
• High administrative costs
• High end or a items

21
APPROPRIATE LEVEL

• Replenishment Policies
• P Models
• Fixed P, variable Q
• Low Administrative Costs
• Low end or C items

22
APPROPRIATE LEVEL

• Estimating Service
• Basic Safety Inventory for Policy

23
APPROPRIATE LEVEL

• Estimating Service
• Cycle Service

24
APPROPRIATE LEVEL

• Estimating Service
• Computationally

25
APPROPRIATE LEVEL

• Estimating Fill Rate

26
APPROPRIATE LEVEL

• Estimating Fill Rate
• Opportunity Cost during Lead Time

27
APPROPRIATE LEVEL

• Estimating Fill Rate
• For all Situations

28
APPROPRIATE LEVEL

• Estimating Fill Rate
• For Normally Distributed Demand

29
APPROPRIATE LEVEL

• Estimating Safety
• Given CSL

30
APPROPRIATE LEVEL

• Estimating Safety
• Given Fill Rate

31
AGENDA

• IMPACT OF UNCERTAINTY (8.3)

32
IMPACT OF UNCERTAINTY

• To this point
• Forecast is culprit
• Supply Chain Certain
• Demand knowable

33
IMPACT OF UNCERTAINTY

• What if
• L allowed to vary
• R allowed to vary

34
IMPACT OF UNCERTAINTY

• A Very Important Equation
• Substituting

35
IMPACT OF UNCERTAINTY
36
AGENDA

• AGGREGATION (8.4)

37
AGGREGATION

• Aggregation
• Pools and, therefore, may reduce risk
• Analogous to what found with forecasting

38
AGGREGATION

• Variable Definition

39
AGGREGATION

• Variable Definition

40
AGGREGATION

• Variable Definition

41
AGGREGATION

• Aggregate Demand

42
AGGREGATION

• Aggregate Demand (Independent)

43
AGGREGATION

• Aggregate Demand (PPC)

44
AGGREGATION

• When Does Not Work
• Increased Response Time
• Transportation Costs

45
AGGREGATION

• When and How Works
• Information
• Specialization
• Slow Moving - High Correlation
• Fast Moving Low Correlation

46
AGGREGATION

• When and How Works
• Product Substitution
• Component Commonality
• Postponement

47
AGENDA

• REPLENISHMENT (8.5)

48
REPLENISHMENT POLICIES

• Continuous Review
• Periodic Review

49
AGENDA

• IN PRACTICE (8.6)

50
IN PRACTICE

• Lumpy Demand
• Derived Demand
• Seasonal Demand
• Simulation (Optimization)
• Pilot (Heuristics)

51
IN PRACTICE

• Simulate (Learning Algorithms and Schrödinger's
  Cat)
• Monitor Service
• Focus on Safety not Cycle

52
SUMMARY AND CONCLUSIONS(8.7)