The document provides an overview of supply chain management concepts related to inventory systems, costs, and design within an ERP system. It discusses types of inventory including independent and dependent demand. It also describes the basic economic order quantity model and price-break quantity discount models. The purpose is to minimize total inventory costs which include ordering, holding, and shortage costs.

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

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. Inventory System Design ERP » sells » delivers » collects purchases « pays « receives « payments/collections « » products Client Supplier Bank Logistics

7. Participants of the Process Client Supplier Bank Private Accountancy IRS Logistics W W W

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. 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. 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. 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

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

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. Cost Minimization Goal Ordering Costs Holding Costs Q OPT Order Quantity (Q) C O S T Annual Cost of Items (DC) Total Cost

18. Deriving the EOQ

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. EOQ Example Solution “ WITH NO SAFETY STOCK”

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. 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

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. 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. 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. 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