Chapter 9 – Inventory Management In-class exercises and discussion points Note that the chapter contains a number of worked problems (both within and at the end of the chapter) which you could also get students to work through in class. Medical Devices Company case study (end of Part 1) Although introduced into the book as a general case at the end of Part 1, this case, which is quite concise, could be worked through in class as it highlights various inventory management issues (the core concern in the case is that there is too much inventory in the system). MDC needs to first classify and then manage its inventory much more effectively. Solution s to end of chapter questions · Explain how a reduction in lead time can help a supply chain reduce its inventory buffer without hurting customer service Reducing lead time increases the accuracy of forecast demand, thus requiring less inventory buffer. Safety stock is needed to cover demand during lead time. As lead time increases, the variation of demand during the lead time increases too. This necessitates carrying more safety stock to cover the variation. A reduction in lead time acts in the opposite way, reducing the safety stock needed. · Why are Internet retailers often able to provide a variety of different products for sale with less inventory than traditional ‘bricks and mortar’ retail stores? By centralising their entire inventory in very few locations they only need to cope with the total demand, not individual demand at the retail stores. The variation in total demand is relatively less than the individual demands. So they need less safety stock. · Discuss the concept of replacing inventory by information In this concept, rather than holding inventory physically on hand, a business holds the information on the quantity and location of inventory. Any customer demand is then met from a nearby location. This inventory concept allows lower inventory holding, at a few strategic locations. A possible disadvantage of this concept is the delay in meeting customer demand while a delivery is arranged. · Why should a customer be concerned about transit inventory cost, if they pay for the inventory only when the merchandise arrives at their premises? Wherever costs are incurred in the supply chain, they are ultimately passed to the end consumer. Thus the competitiveness of the entire supply chain is affected by transit inventory costs. Extra essay style question · You have been tasked with a consultancy assignment to increase inventory turnover for a retailer of sports clothing. Outline how you would conduct such an assignment. Students can make their own assumptions about the retailer, although they will likely note issues such as the fact that seasonality of demand for different types of clothing is likely to be a big issue. Another issue might be ‘spikes’ in demand for certain items – for example t-shirts worn by a very popular soccer team who become increasingly popular as a result o.

1. Chapter 9 – Inventory Management
In-class exercises and discussion points
Note that the chapter contains a number of worked problems
(both within and at the end of the chapter) which you could also
get students to work through in class.
Medical Devices Company case study (end of Part 1)
Although introduced into the book as a general case at the end
of Part 1, this case, which is quite concise, could be worked
through in class as it highlights various inventory management
issues (the core concern in the case is that there is too much
inventory in the system). MDC needs to first classify and then
manage its inventory much more effectively.
Solution
s to end of chapter questions
· Explain how a reduction in lead time can help a supply chain
reduce its inventory buffer without hurting customer service
Reducing lead time increases the accuracy of forecast demand,
thus requiring less inventory buffer. Safety stock is needed to
cover demand during lead time. As lead time increases, the
variation of demand during the lead time increases too. This

2. necessitates carrying more safety stock to cover the variation. A
reduction in lead time acts in the opposite way, reducing the
safety stock needed.
· Why are Internet retailers often able to provide a variety of
different products for sale with less inventory than traditional
‘bricks and mortar’ retail stores?
By centralising their entire inventory in very few locations they
only need to cope with the total demand, not individual demand
at the retail stores. The variation in total demand is relatively
less than the individual demands. So they need less safety
stock.
· Discuss the concept of replacing inventory by information
In this concept, rather than holding inventory physically on
hand, a business holds the information on the quantity and
location of inventory. Any customer demand is then met from a
nearby location. This inventory concept allows lower inventory
holding, at a few strategic locations. A possible disadvantage of
this concept is the delay in meeting customer demand while a
delivery is arranged.
· Why should a customer be concerned about transit inventory
cost, if they pay for the inventory only when the merchandise

3. arrives at their premises?
Wherever costs are incurred in the supply chain, they are
ultimately passed to the end consumer. Thus the
competitiveness of the entire supply chain is affected by transit
inventory costs.
Extra essay style question
· You have been tasked with a consultancy assignment to
increase inventory turnover for a retailer of sports clothing.
Outline how you would conduct such an assignment.
Students can make their own assumptions about the retailer,
although they will likely note issues such as the fact that
seasonality of demand for different types of clothing is likely to
be a big issue. Another issue might be ‘spikes’ in demand for
certain items – for example t-shirts worn by a very popular
soccer team who become increasingly popular as a result of
winning particular matches. The starting point for the
assignment is likely be an assessment of current inventory
performance (inventory turns) and benchmarking against best
practice. Once such data is known, the assignment would then
progress to evaluating how inventory is both managed
(including approach to classification) and controlled (including
reordering strategy) in the system. Various issues (for example

4. in-transit inventory) and strategies for managing and reducing
inventory can next be considered (centralisation, delayed
product differentiation, part commonality, pooling, reduction of
variation and lead time, and application of JIT) can next be
considered.
More questions
· How does part commonality reduce inventory holding?
· How does delayed product differentiation help in reducing
inventory?
Extra Problem
Hamilton Fabricators at Te Rapa orders steel plates from the Te
Akau steel plant on a regular basis. An investigation revealed
the following details:
Annual demand = 5,000 tons
Cost of steel = $ 2,000 per ton
Current order size = 500 tons, transported by TranzRail

5. TranzRail transport cost = $100 per ton
Safety inventory carried = 50% of demand during replenishment
lead time
Inventory holding cost = 25% of purchase price per year
Replenishment lead time = 5 days
Calculate the transit inventory cost, the safety inventory cost,
and thetransportation cost on an annual basis.
Answer:
H = 2000 ( 25% = $500 / ton / year
Annual transit inventory cost = D ( L ( H = 5000 ( (5 / 365) (
500 = $ 34246.58
SS = 5000 ( (5 / 365) ( 50% = 34.25 tons

6. Annual safety inventory cost = SS ( H = 34.25 ( 500 = $
17,125.00
Annual transportation cost = 5000 ( 100 = $ 500,000.00
© 2016 John Wiley & Sons, Ltd - Additional resources to
accompany Global Logistics and Supply Chain Management 3e
by John Mangan and Chandra Lalwani -
www.wiley.com/college/mangan
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Root Meristem of Vicia faba
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Chapter 7 – Logistics Service Providers
In-class exercises and discussion points
Examples of Leading LSPs
If students are online in the classroom you could ask them to
briefly visit the websites of some of the LSPs detailed in this
chapter. LSP websites tend to be quite informative and students

13. should quite quickly be able to get an insight into the nature of
those companies and the range of services that they provide.