Fairy tale Mr Smart and inventory management


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Is it possible, that all buyers from the same company will order the same amount of inventory, if they will have the identical conditions? Let's check how big fluctuation in answers we will get!

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Fairy tale Mr Smart and inventory management

  1. 1. Fairy tale:Mr.Smart from LaLiMa 1 1
  2. 2. My dear readers!I would like to tell you a very old fairy tale. Some saidit is more than 100 years old. But some claimed it ismore than 2000 years old. From this fairy tale, youwould be able to learn that our issues of SupplyChain Management in current modern world are asold as our civilization…In our current days, this fairy tale is told bygrandmothers and professors to their children andstudents all around the world before going to sleep (ina lecture)…Here the fairy tale goes… 2
  3. 3. Once upon a time, there was a strong kingdom in theWest called LALIMA, which located in the middle ofnowhere. People of LALIMA lived happily and wealthily,but under tight control of LALIMA Royal Family.The people of LALIMA were very proud of their kingdom,as they have the cleanest city in the world, and thecitizens of LALIMA were all smart people. 3 3
  4. 4. The LALIMA Royal Family controlled all theeconomy in the country. One day, after readingclever books from the East, King Paul the DaruIII, King of LALIMA, declared a new concept of“Free Market”.People of LALIMA did not know what that was,but they felt very proud of the idea, as they lovedtheir King and Queen very much. 4 4
  5. 5. In Southern city of LALIMA, lived a smartdude called Mr. Smarty. Mr. Smarty workedas the Purchaser for Royal Palace. Heloved his job very much. This job gave hima lot of satisfaction – The Royal Palacegranted him power to dictate all deliveryconditions and prices, because he wasgood at negotiations with suppliers. Hecould not always get goods from thesuppliers on time, but he had a goodpunishment system that worked very well. 5 5
  6. 6. In one beautiful morning, while Mr. Smarty was having his LALIMA smart coffee at home, Mr. Smarty received a letter from State Water Supply Company of LALIMA “Justwater”: JUSTWATERAfter introducing a new technology of recyclingdomestic water from sewage water it is decidedthat every citizen of LALIMA should order waterin necessary amount in advance.We request that citizens of LALIMA send theirorder for their monthly demand at the end ofeach month.Every citizen should go and pick up the orderedamount within 3 days after placing an order. 6
  7. 7. “There is no other country like ours in thewhole wide world! This is an ultimatefree country”, thought Mr. Smarty. “Evenwater we can order in the amount thatwe really needed – no more, no less. Whoknows better than us the actual demandfor water? In our country there is nopressure on individual.” 7
  8. 8. Upon agreement with Mr.Smarty’s thought, the State radio“SHALALA” made a publicannouncement: Минск “You are free to order NOW!”, came a voice from radio – “Without a piping system it will be much more difficult for our neighboring country, MALILA, to spy on us. Use your rights and enjoy living in our beautiful country of LALIMA!” 8
  9. 9. Mr. Smarty was very optimistic. After all, he isone of the best Purchasers in the Kingdom. TheKing himself respected Mr. Smarty a lot. Now,Mr. Smarty had a chance to improve his faceamong neighbors and relatives. But mostimportantly – to all his 3 wives – already foryears they were not happy with a husband that isspending too much time at work. “I will prove toall of them – I am a person to respect and honor” 9 9
  10. 10. Mr. Smarty bought an old waterreservoir and installed on top of theroof at his house.“This volume should be enough for thewhole month!”, thought Mr. Smarty. 10
  11. 11. Mr. Smarty graduated from Smart University, Clever Faculty. So it was not difficult for him to calculate the necessary amount of water needed. Mr. Smarty calculated, and then placed an order.Within two days, Mr.Smarty received allthe water heordered. 11
  12. 12. To be continue.... Well, let’s have a break for a while from the fairy tale. Let’s show to Mr. Smarty how you can order (or purchase) goods better than him, if you know the history of real consumption. 12 12
  13. 13. Simulation No.1 (Beginner Level) This is a task for beginners. If you think you have more experience, please work on Simulation No. 2.90 Product “LaLiMa”8070605040302010 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Week 13 13
  14. 14. Here is the situation:I. The above graph shows the statistics of yearly sales (for the last 45 weeks) of product “LALIMA”.II. Product is sold to retail shops.III. You are in the beginning of week 46.IV. Order Lead-time is 2 weeks (time from placing an order till receiving goods)V. The Producer (manufacturing plant) is located in India.VI. Current inventory in your warehouse is 140 pcs. 14 14
  15. 15. Here is your Task:1. How much will you order?2. When will be your next order and how much?3. Provide your formula for calculations. 15 15
  16. 16. Simulation No.2 (Advanced Level)Here is the situation: • Refer to the above graph. Graph shows statistics of yearly sales of product “LALIMA” for the last 45 weeks. • Product is sold to retail shops. • You are in the beginning of week 46. • Order Lead-time is 2 weeks (time from placing an order till receiving goods). • The Producer (manufacturing plant) is located in India. • Your current inventory in the warehouse is 140 pcs. • You are preparing a Sales Campaign for this product in 4-week time. Sales Campaign will start from week 50. • The duration for the Sales Campaign is 4 weeks (week 50, 51, 52, and 53) 16 16
  17. 17. Here is your Task:1.Make a forecast on how much will be the Sales during the Campaign.2.Make a schedule for orders (when should you place the order, and how much is the order amount).3.Calculate what is the amount of inventory you want to hold a night before the Campaign (at the end of week 49).4.Provide your formula for calculations. 17 17
  18. 18. Please send your answers on Simulations (either oneor both) to darius.radkevicius@gig-europe.eu We will summarize all answers and post them in thenext publication. The answers will be anonymous. Thiswill help you to compare your answers with others andsolve even more difficult Simulations.On the next publication: 1. Analysis of Simulations No.1 and No.2. 2. … to be continue the LALIMA fairy tale. 3. New Simulations.Please fill free to forward this article to yourcolleagues, friends and business partners. ! Important)Note:) The)fairy)tale)original)author)is)–)Rinardas)Goda)) This)article)authors)are:)Darius)Radkevicius,)Pauls)Irbins,)Yin)Li)Chua) 18 18
  19. 19. You can order a book, workshop, analysis or lecture, or just a dream at: darius@versloknyguklubas.lt +37069841027 Darius  Radkevičius   Author of “God, Quantum physics, Organizational structure and Management style”http://www.amazon.co.uk/Quantum-Physics-Organizational- Structure-Management/dp/9955689234/ref=sr_1_1? ie=UTF8&s=books&qid=1266446827&sr=1-1 19
  20. 20. www.god-­‐physics-­‐management.com 44 20