Adva nce Supply Chain Management Holistic Overview with respect to an ERP and Control Systems  Rahul Guhathakurta, Associa...
Contents <ul><li>Inventory System Design </li></ul><ul><li>Inventory Costs </li></ul><ul><li>Independent vs. Dependent Dem...
Purposes of Inventory <ul><li>1. To maintain  independence  of operations. </li></ul><ul><li>2. To meet  variation  in pro...
Types of Inventory Costs <ul><li>Holding (or carrying) costs. </li></ul><ul><ul><li>Costs for storage, handling, insurance...
Independent vs. Dependent Demand Independent Demand (Demand not related to other items or the final end-product) Dependent...
Inventory System Design ERP » sells » delivers » collects purchases « pays « receives « payments/collections « » products ...
Participants of the Process Client Supplier Bank Private Accountancy IRS Logistics W W W
Inventory System Design: EBS Integration <ul><li>Introduction of the ERP Platform </li></ul><ul><li>Local non-intrusive in...
Purchase Process 1) The Company requests a quote 2) The Supplier sends the estimate 3) The Purchase Order is issued Privat...
Purchase Process 4) Supplier requests the delivery to Logistics 5) It issues the Packing Slip 6) Logistics delivers the pr...
Purchase Process 8) The Company pays the purchase 9) Supplier receives notification of the payment 7) The Invoice is sent ...
Purchase Process 10) Other entities related to the process may be integrated into the Platform and receive relevant inform...
Electronic Invoice <ul><li>Documents are available from any web access, anytime </li></ul><ul><li>Visualization, printing,...
Collection and Reconciliation The Client decides how and where to pay Notification to the Reconciliation module Informatio...
Central Repository <ul><li>They can be reviewed and retrieved from a web access </li></ul><ul><li>All documents created ar...
Basic Fixed-Order Quantity Model and Reorder Point Behavior R = Reorder point Q = Economic order quantity L = Lead time L ...
Cost Minimization Goal Ordering Costs Holding Costs Q OPT Order Quantity (Q) C O S T Annual Cost of Items (DC) Total Cost
Deriving the EOQ
EOQ Example Problem Data Annual Demand = 1,000 units Days per year considered in average daily demand = 365 Cost to place ...
EOQ Example Solution “ WITH NO SAFETY STOCK”
Safety Stock Safety stock reduces risk of Stock-out during lead time LT Time Expected demand during lead time Maximum prob...
Reorder Point The ROP based on a normal Distribution of lead time demand ROP Risk of a stockout Service level Probability ...
Special Purpose Model: Price-Break Model Formula Based on the same assumptions as the EOQ model, the price-break model has...
Price-Break Example   Problem Data (Part 1) Order Quantity(units) Price/unit($) 0 to 2,499  $1.20 2,500 to 3,999  1.00 4,0...
Price-Break Example Solution (Part 2) Annual Demand (D)= 10,000 units Cost to place an order (S)= $4 First, start with the...
Price-Break Example Solution (Part 3) TC(1826)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20) = $12,043.82 TC(2500)  = $1...
Price-Break Example Since the feasible solution occurred in the first price-break, it means that all the other true Q opt ...
ABC Classification System <ul><li>Items kept in inventory are not of equal importance in terms of: </li></ul><ul><ul><li>d...
Bibliography <ul><li>Essentials of Supply Chain Management by Michael Hugos </li></ul><ul><li>Oracle E-Business Suite Manu...
<ul><li>THANK YOU! </li></ul>
<ul><li>Feel free to use this PowerPoint for your personal, </li></ul><ul><li>educational and business presentations. </li...
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Advance Supply Chain Management : Holistic Overview with respect to an ERP and Inventory Control Systems

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Advance Supply Chain Management : Holistic Overview with respect to an ERP and Inventory Control Systems

Inventory System Design
Inventory Costs
Independent vs. Dependent Demand
Basic Fixed-Order Quantity Models
Basic Fixed-Time Period Model- we will omit.
Economic Production Quantity Model- we will omit.
Single Time Period Model- we will omit.
Quantity Discounts-also known as price break models.

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  • Advance Supply Chain Management : Holistic Overview with respect to an ERP and Inventory Control Systems

    1. 1. Adva nce Supply Chain Management Holistic Overview with respect to an ERP and Control Systems Rahul Guhathakurta, Associate Consultant – SCM Email: rahulg@evosys.co.in or rahulogy@gmail.com
    2. 2. Contents <ul><li>Inventory System Design </li></ul><ul><li>Inventory Costs </li></ul><ul><li>Independent vs. Dependent Demand </li></ul><ul><li>Basic Fixed-Order Quantity Models </li></ul><ul><li>Basic Fixed-Time Period Model- we will omit. </li></ul><ul><li>Economic Production Quantity Model- we will omit. </li></ul><ul><li>Single Time Period Model- we will omit. </li></ul><ul><li>Quantity Discounts-also known as price break models. </li></ul>
    3. 3. Purposes of Inventory <ul><li>1. To maintain independence of operations. </li></ul><ul><li>2. To meet variation in product demand . </li></ul><ul><li>3. To allow flexibility in production scheduling. </li></ul><ul><li>4. To provide a safeguard for variation in raw material delivery time. </li></ul><ul><li>5. To take advantage of economic purchase-order size. </li></ul>
    4. 4. Types of Inventory Costs <ul><li>Holding (or carrying) costs. </li></ul><ul><ul><li>Costs for storage, handling, insurance, etc. </li></ul></ul><ul><li>Setup (or production change) costs. </li></ul><ul><ul><li>Costs for arranging specific equipment setups, etc. </li></ul></ul><ul><li>Ordering costs. </li></ul><ul><ul><li>Costs of someone placing an order, etc. </li></ul></ul><ul><li>Shortage costs. </li></ul><ul><ul><li>Costs of canceling an order, etc. </li></ul></ul>
    5. 5. Independent vs. Dependent Demand Independent Demand (Demand not related to other items or the final end-product) Dependent Demand (Derived demand items for component parts, subassemblies, raw materials, etc.)
    6. 6. Inventory System Design ERP » sells » delivers » collects purchases « pays « receives « payments/collections « » products Client Supplier Bank Logistics
    7. 7. Participants of the Process Client Supplier Bank Private Accountancy IRS Logistics W W W
    8. 8. Inventory System Design: EBS Integration <ul><li>Introduction of the ERP Platform </li></ul><ul><li>Local non-intrusive integration devices </li></ul>Private Accountancy Receivables W W W Client Supplier Bank Logistics <ul><li>Purchase Process </li></ul><ul><li>Electronic Invoice </li></ul><ul><li>Collection & Reconciliation </li></ul><ul><li>Central Repository </li></ul>
    9. 9. Purchase Process 1) The Company requests a quote 2) The Supplier sends the estimate 3) The Purchase Order is issued Private Accountancy Rec. W W W Logistics Supplier Client Bank Quote Purchase Order I.ERP I.ERP
    10. 10. Purchase Process 4) Supplier requests the delivery to Logistics 5) It issues the Packing Slip 6) Logistics delivers the products with the packing slip Private Accountancy Rec. W W W Supplier Packing Slip Client Bank Logistics
    11. 11. Purchase Process 8) The Company pays the purchase 9) Supplier receives notification of the payment 7) The Invoice is sent $ Private Accountancy Rec. W W W Invoice Supplier Invoice Integration with Receivables Client Bank Logistics
    12. 12. Purchase Process 10) Other entities related to the process may be integrated into the Platform and receive relevant information Private Accountancy Rec. W W W Client Supplier Bank Logistics
    13. 13. Electronic Invoice <ul><li>Documents are available from any web access, anytime </li></ul><ul><li>Visualization, printing, editing, forwarding capabilities, and more </li></ul><ul><li>Costs and time optimization </li></ul><ul><li>Centralized storage </li></ul>Informs IRS Supplier Client Invoice XXX XXX XXX Invoice
    14. 14. Collection and Reconciliation The Client decides how and where to pay Notification to the Reconciliation module Information sent to the Supplier Integration with other entities available Supplier Bank Client IRS W W W Private Accountancy
    15. 15. Central Repository <ul><li>They can be reviewed and retrieved from a web access </li></ul><ul><li>All documents created are stored on a Central Repository </li></ul>Private Accountancy Rec. W W W Client Supplier Bank Logistics Quote Purchase Order Packig Slip Invoice REPOSITORY
    16. 16. Basic Fixed-Order Quantity Model and Reorder Point Behavior R = Reorder point Q = Economic order quantity L = Lead time L L Q Q Q R Time Number of units on hand R = Reorder point Q = Economic order quantity L = Lead time L L Q Q Q R Time Number of units on hand
    17. 17. Cost Minimization Goal Ordering Costs Holding Costs Q OPT Order Quantity (Q) C O S T Annual Cost of Items (DC) Total Cost
    18. 18. Deriving the EOQ
    19. 19. EOQ Example Problem Data Annual Demand = 1,000 units Days per year considered in average daily demand = 365 Cost to place an order = $10 Holding cost per unit per year = $2.50 Lead time = 7 days Cost per unit = $15 Given the information below, what are the EOQ and reorder point?
    20. 20. EOQ Example Solution “ WITH NO SAFETY STOCK”
    21. 21. Safety Stock Safety stock reduces risk of Stock-out during lead time LT Time Expected demand during lead time Maximum probable demand during lead time ROP Quantity Safety stock
    22. 22. Reorder Point The ROP based on a normal Distribution of lead time demand ROP Risk of a stockout Service level Probability of no stock-out Expected demand Safety stock 0 z Quantity z-scale
    23. 23. Special Purpose Model: Price-Break Model Formula Based on the same assumptions as the EOQ model, the price-break model has a similar Q opt formula: <ul><li>i = annual percentage of unit cost attributed to carrying inventory </li></ul><ul><li>C = cost per unit </li></ul>
    24. 24. Price-Break Example Problem Data (Part 1) Order Quantity(units) Price/unit($) 0 to 2,499 $1.20 2,500 to 3,999 1.00 4,000 or more .98 Start at lowest price per unit
    25. 25. Price-Break Example Solution (Part 2) Annual Demand (D)= 10,000 units Cost to place an order (S)= $4 First, start with the lowest price per unit. Carrying cost % of total cost (i)= 2% Cost per unit (C) = $1.20, $1.00, $0.98 Interval from 0 to 2499, the Q opt value is feasible. Interval from 2500-3999, the Q opt value is not feasible. Interval from 4000 & more, the Q opt value is not feasible. Next, determine if the computed Q opt values are feasible or not.
    26. 26. Price-Break Example Solution (Part 3) TC(1826)=(10000*1.20)+(10000/1826)*4+(1826/2)(0.02*1.20) = $12,043.82 TC(2500) = $10,041 TC(4000) = $9,949.20 Next, Compare total cost for the feasible root Q and price break Q values.
    27. 27. Price-Break Example Since the feasible solution occurred in the first price-break, it means that all the other true Q opt values occur at the beginnings of each price-break interval. Why? 0 1826 2500 4000 Order Quantity Total annual costs Because the total annual cost function is a “u” shaped function. EOQ Not EOQ Not EOQ
    28. 28. ABC Classification System <ul><li>Items kept in inventory are not of equal importance in terms of: </li></ul><ul><ul><li>dollars invested </li></ul></ul><ul><ul><li>profit potential </li></ul></ul><ul><ul><li>sales or usage volume </li></ul></ul><ul><ul><li>stock-out penalties </li></ul></ul>0 30 60 30 60 A B C % of $ Value % of Use So, identify inventory items based on percentage of total dollar value, where “A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65% are the “C” items.
    29. 29. Bibliography <ul><li>Essentials of Supply Chain Management by Michael Hugos </li></ul><ul><li>Oracle E-Business Suite Manufacturing & SCM by Bastin Gerald, Nigel King and Dan Natchek </li></ul><ul><li>Oracle’s Inventory User Guide </li></ul>
    30. 30. <ul><li>THANK YOU! </li></ul>
    31. 31. <ul><li>Feel free to use this PowerPoint for your personal, </li></ul><ul><li>educational and business presentations. </li></ul><ul><li>Do </li></ul><ul><li>Make a copy for backups on your harddrive or local network. </li></ul><ul><li>Use the free templates for your presentations and projects. </li></ul><ul><li>Print hand outs or other promotional items. </li></ul><ul><li>Link back to our SlideShare account </li></ul><ul><li>Embed my PowerPoint of to your website or blog. </li></ul><ul><li>Please feel free to contact me , if you do have any questions about usage. </li></ul><ul><li>Don‘t </li></ul><ul><li>Resell or distribute of my work </li></ul><ul><li>Make it available on a website , portal or social network website for download . Edit or modify the downloaded templates and claim / pass off as your own work. </li></ul><ul><li>All copyright and intellectual property rights, without limitation, are retained by </li></ul><ul><li>Rahul Guhathakurta. By downloading and using this PowerPoint , you agree to this statement. </li></ul>Copyright N otice

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