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So far, we have studied single-item single
location inventory policies.
What about . . .
Multiple Items
Operational Tactical
Strategic
Inputs
Plan
Transportation costs
Facility fixed and
variable costs
Inventory costs
Service levels
Network
Design
Inventory flow
Network
configuration
Capacity
Deployment
Item-level flow
Item classifications
Inventory locations
Target Service levels
Target Reorder points
Target Safety stock
Replenishment
Forecast
Lead times
Variable and
inventory costs
Business policies
Forecasts/Orders
Lead times
Handling costs
Vendor/volume
discounts
Results
Customer orders
On-hand and
in-routeinventories
Real transit costs
Production
schedules
Allocation
Demand prioritization
Assign inventory to
orders
Exchange Curves
Exchange Curves
Set notation for each item:
Need to find:
v i
rv i
n Qv
n
TACS = i =1 i i = i =1
2
2
ADi v i
A 1
n
n
=
TACS = i =1
Di v i
r 2 i =1
2r
MIT Center for Transportation & Logistics ESD.260
N = i =1
n
N = i =1
n
Di
Di
n
= i =1
Qi
2 ADi
rv i
rDi v i
=
2A
r 1
n
Di v i
A 2 i =1
Exchange Curves
Exchange Curve
$160,000
A/r = 10000
$140,000
$120,000
Current Operations
$100,000
$80,000
A/r = 10
$60,000
$40,000
$20,000
$-
100
200
300
400
500
Number of Replenishments
Exchange Curves
Now consider safety stock, where we are trading off SS
inventory with some service metric
Different k values dictate where we are on the curve
Suppose that we only have budget for $2000 in SS what is our
CSL?
Single Item Exchange Curve
7000
6000
Safety Stock ($)
5000
4000
3000
2000
1000
0
-1000
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
-2000
-3000
Cycle Service Level
Exchange Curves
Set notation for each item:
Need to find:
TSS = i =1 k i Li v i
n
ETSOPY = i =1
Di
P [SOi ]
Qi
ETVSPY = i =1
n
Di
Li v i G(ki )
Qi
Exchange Curves
$3,500
k=3
$3,000
$2,500
k=1.6
$2,000
$1,500
$1,000
$500
$-
100
200
300
400
500
600
700
800
RDC1
RDC2
LDC1
R1
LDC2
R2
R3
LDC3
R4
R5
10
LDC4
R6
R7
R8
11
Impact of Multi-Echelons
CDC
Demand
Pattern
RDC
Ordering
Patterns
RDC
Inventory
Cycles
Customer
Demand
Patterns
12
Concepts
13
DRP Requirements
Information Requirements:
DRP Process:
Requirements Implosion
Net from Gross Requirements
Requirements Time Phasing
Planned Order Release
14
Central Warehouse
Regional Warehouse 1
Regional Warehouse 2
Retailer A
Retailer B
Retailer C
Retailer D
Retailer E
Retailer E
15
Regional Warehouse 3
Retailer G
Retailer H
Retailer I
NOW
Period Usage
100
20
50
30
100
100
Gross Rqmt
100
20
50
30
100
100
Begin Inv
150
50
30
180
150
50
50
150
Sched Recpt
Net Rqmt
20
50
Planned Recpt
200
200
180
150
50
50
150
150
End Inv
150
Planned Order
50
30
200
200
Regional Warehouse One
Plant
Central Warehouse
NOW
Period Usage
25
25
25
25
25
25
25
25
Gross Rqmt
40
40
40
40
40
40
40
40
Begin Inv
50
25
50
25
50
25
50
25
Sched Recpt
Net Rqmt
15
15
15
15
50
50
50
50
25
50
25
50
25
50
25
50
Planned Recpt
End Inv
50
Planned Order
Regional Warehouse 1
Regional Warehouse 2
Retailer D
Retailer E
Retailer E
Retailer G
Retailer H
Retailer I
50
50
50
Regional Warehouse 3
Q=30, SS=10, LT=1
Retailer A
Retailer B
Retailer C
50
NOW
Period Usage
10
10
10
10
20
20
20
20
Gross Rqmt
20
20
20
20
30
30
30
30
Begin Inv
20
10
30
20
10
20
30
10
Sched Recpt
Net Rqmt
10
20
10
20
Planned Recpt
End Inv
20
Planned Order
10
30
30
30
30
30
20
10
20
30
10
20
30
30
30
30
Note:
Gross Rqmt = Period Usage + SS
Period Usage
15
10
10
15
15
Gross Rqmt
15
25
20
20
10
25
10
25
Begin Inv
15
10
15
25
15
15
20
20
Sched Recpt
Net Rqmt
15
10
Planned Recpt
20
20
20
20
10
15
25
15
15
20
20
25
End Inv
NOW
16
15
Forecast
Period Usage
25
25
25
25
25
25
25
25
Gross Rqmt
40
40
40
40
40
40
40
40
Begin Inv
50
25
50
25
50
25
50
25
Sched Rcpt
Net Rqmt
15
Plan Rcpt
End Inv
50
POR
15
15
15
50
50
50
50
25
50
25
50
25
50
25
50
50
50
17
50
50
Period Usage
10
10
10
10
20
20
20
20
Gross Rqmt
20
20
20
20
30
30
30
30
Begin Inv
20
10
30
20
10
20
30
10
20
10
Sched Rcpt
Net Rqmt
10
Plan Rcpt
End Inv
20
POR
20
30
30
30
30
10
30
20
10
20
30
10
20
30
30
30
18
30
15
10
10
15
15
Gross Rqmt
15
25
20
20
10
25
10
25
Begin Inv
15
10
15
25
15
15
20
20
15
20
20
20
20
10
15
25
15
15
20
20
25
20
20
Period Usage
Sched Rcpt
Net Rqmt
Plan Rcpt
End Inv
15
POR
19
10
20
20
Period Usage
100
20
50
30
100
POR
200
CENTRAL
0
100
25
25
25
200
REGION ONE
Period Usage
25
POR
50
25
25
25
50
25
50
50
REGION TWO
Period Usage
10
POR
30
10
10
10
20
30
30
10
20
20
20
30
REGION THREE
Period Usage
POR
MIT Center for Transportation & Logistics ESD.260
15
20
20
20
10
20
15
15
20
Chris Caplice, MIT
Period Usage
100
20
50
30
100
100
Gross Rqmt
100
20
50
30
100
100
Begin Inv
150
50
30
180
150
50
50
150
Sched Rcpt
Net Rqmt
20
Plan Rcpt
End Inv
POR
150
50
200
200
50
30
180
150
50
50
150
150
200
200
21
22
MRP
SA
SA
SA
SA
MPS
Product
CDC
RDC
DRP
Retail
RDC
Retail
Retail
Retail
Sales/Marketing Plan
MIT Center for Transportation & Logistics ESD.260
23
Scheduling emphasis
Focus on quantities and times, not cost
Multiple, inter-related items and locations
Simple heuristic rules
24
25
RDC1
RDC2
LDC1
R1
LDC2
R2
R3
LDC3
R4
R5
26
LDC4
R6
R7
R8
RDC1
RDC2
SHORTAGES
LDC1
R1
EXCESS
LDC2
R2
R3
LDC3
R4
R5
27
LDC4
R6
R7
R8
RDC1
RDC2
SHORTAGES
LDC1
R1
EXCESS
LDC2
R2
R3
LDC3
R4
R5
28
LDC4
R6
R7
R8
Local
Information
N/A
29
Decentralized
Control
DRP (most cases)
Base Stock Control
Standard Inventory
Policies:
(R,Q), (s,S) etc.
Questions?