MGT 301 Lecture Notes - Demurrage, Deadhead, Aggregate Demand
Categories Inventory: Raw Materials: Unprocessed purchased inputs
Work in Process (WIP): Partially processed materials not yet ready for sales
Finished Goods: Products ready for shipment
Maintenance, Repair and Operating (MRO): Materials used when producing
Cycle (or average) Inventory: Portion of total inventory that varies with
order size Safety Stock Inventory: Surplus held to protect against
uncertainties Anticipation Inventory: Surplus used to absorb uneven rates
of demand and supply Pipeline Inventory (Transit inventory): Inventory
moving from point to point in the supply chain Obsolete Inventory: Stock
that is out of date or not in demand.
Avoid: Requires additional space, Opportunity cost of capital, Spoilage and
shrinkage, Obsolescence, Insurance, taxes etc. Inventory can hide problems
within the business. Inventory Turnover Ratio= Cost of revenue/ Average
Inventory EOQ= Order Quantity in Units: EOQ= √2RS/kC
ROP= Reorder points in Units: (R/Days in a year) * LT (lead time)
TAIC=Total annual inventory costs: APC+ AHC+AOC+AHB (sometimes)
AHC= Annual holding costs of an item: (Q/2)kC
AOC= Annual ordering cost of the item: (R/Q) S
APC= Annual purchase cost of the item: (RC)
R=annual requirements (or demand) of the item in units per year
C= purchase cost per unit
Q=order quantity (units)
S=cost of placing one order (or setup cost) ($ per order)
k=holding cost rate (or percent), where the annual inventory
carrying cost per unit = k C
Dwell time: Days inventory sits idle/ Says
inventory moves in supply chain
Logistics value proposition: The product
must bring a significant bottom line benefit
within the company and its customers
5 modes of transportation: Rail: large
tonnage over long distances Highway/ Truck: Advantage: Speed of Transit,
Ability to operate door-to-door, efficient for smaller shipments over short
distances. Disadvantage: maintenance, safety, driver shortages, drover
regulations) , Water: Globalization of supply chain, carries big loads
Pipeline,: Highest fixed cost, lowest variable cost, operates 24/7, no
emissions, no repositioning Air: Fastest, accounts for 1% intercity ton-miles,
high priority goods.
Intermodal: Combines two or more modes to take advantage of the
inherent economies of each and thus provide an integrated service at a low
cost. FOB – free on board: seller indicates the price at point of origin and
agrees to tender a shipment for transportation loading, but assumer not
further responsibility. (Seller arranges for transpiration and the charges are
added up in the sales invoice Commodity rates are special or specific rates
published without regard to classification. Contract between shipper and
carriers, published on a point to point basis and apply only on specific
products. Rail uses this Transportation operating service characteristics:
Speed, availability, dependability, capability, frequency Dead-head: When
crew/ staff are on mode but are not working. When truck has to go back
empty Taper principle: Economies of distance. Rates change depending on
distance. Demurrage: charges that the carrier pays to the ship owner for its
delayed operations. Omni-channel logistics: Multi-channel. Product can be
at right place at right time. Many services to insure this promise on multiple
levels. Challenges: Driver shortages due to regulations, ports not large
enough for some ships, infrastructure, traffic jams Explain risk pooling:
Thik isurae, it’s a good thig. Dead variaility is redued if oe a
aggregate demand. Adding more warehouses means: fewer customers, less
risk pooling, more demand uncertainty, more inventory
Square Root Rule: S2= √N2/√N1 (S1)
N1: # of warehouses current S1: # of inventory currently holding N2:
proposed # of warehouses S2: amount of inventory when changed
Warehouse consolidation: When there is a warehouse that can consolidate
things products from different plants to transport them to customers
Supply chain management: Encompasses that planning and
management of all activities in sourcing, procurement and logistics.
Horizontal Integration: Different companies manage different parts of
the supply chain. Benes of Horizontal: Diversify its products, achieve
economies of scale, gain access to new customer markets.
Vertical Integration: Supply chain of company is owned by that
company. Sourcing: ensure the reliable supply of materials and services
to the firm at lowest possible price. Operations: Effective and efficient
transformation of these materials and services into products.
Logistics: The effective and efficient flow and storage of goods and
services Cash to cash Cycle: Amount of time needed from point one to
making money. Days of inventory + Days AR-Days AP
Old Paradigm: Vertically integrated companies, mass production, pour
quality. New Paradigm: Horizontally integrated, areas of specialization,
Voluntary trust based relationships
Trade off: Goals often require a tradeoff of another goal.
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Document Summary
Work in process (wip): partially processed materials not yet ready for sales. Maintenance, repair and operating (mro): materials used when producing. Avoid: requires additional space, opportunity cost of capital, spoilage and shrinkage, obsolescence, insurance, taxes etc. Inventory eoq= order quantity in units: eoq= 2rs/kc. Rop= reorder points in units: (r/days in a year) * lt (lead time) Ahc= annual holding costs of an item: (q/2)kc. Aoc= annual ordering cost of the item: (r/q) s. Apc= annual purchase cost of the item: (rc) R=annual requirements (or demand) of the item in units per year. S=cost of placing one order (or setup cost) ($ per order) k=holding cost rate (or percent), where the annual inventory carrying cost per unit = k c. Dwell time: days inventory sits idle/ says inventory moves in supply chain. Logistics value proposition: the product must bring a significant bottom line benefit within the company and its customers.
