effect of demand on inventory- supply chain

SHRI RAMDEOBABA COLLEGE OF ENGINEERING & MANAGEMENT

INDUSTRIAL ENGG. DEPT.

SUPPLY CHAIN MANAGEMENT

ASSIGNMENT 2

-Faizan Ali Sayyed 33

PROBLEM STATEMENT

How does uncertainty in demand affects inventory level?

What is inventory control? the supervision of supply, storage and

accessibility of items in order to ensure an adequate supply without excessive oversupply\

Inventories are called as deadinvestments

Uncertainty is caused due to… Supply-

unreliability of vendors-suppliers

Process-internal processes

Demand-uncertainty in demand

What is demand uncertainty difficulty in accurately projecting

customer demand in the future

 it makes inventory hard to control and manage

can vary from day to day, week to week, or seasonall

What is lead time? the latency between the initiation and

execution of a process time between the initiation of a process and

its completion

neither to high nor to low level of inventory is beneficial

there is no cut- and – dried formula to estimate or predict demand

there is no thumb rule to forecast demand

thrilling pressure to cut down there total logistical cost especially inventory

If company holds high level inventory, it may be capable enough to meet

unforeseen demand and generate additional sales, volumes due to advantages of impulse buying tendencies,

but at the same time it leads to undue: Carrying/ holding charges in form of taxes,

insurance, storage facilities, depreciation. Involvement of working capital which ultimately

affects the overall profitability of the firm.

If the company holds too little inventory,

Too frequent ordering

Loss of Quantity discount

Higher transportation charges

Likely shortage in future

Inventory is essential for smooth functioning of any organization mainly due to geographical specialization , periodic variation and for balancing of supply and demand.

Given limited resources firms must often choose among alternative investment decisions example between focusing on reducing demand fluctuations, lead times or lead time fluctuations.

Traditionally proper management of inventory levels to issues need proper attention and analysis:

1 .Order quantity(How much to order of each material with either outside supplier or production department within organization. It is also called LOT Sizes or Economic Order Quantity,EOQ)

2. Order Points (When to place the orders. It is also called Reorder Points,RP)

Techniques like JIT, MRP , DRP etc to cut down there total logistical cost

EDI, DND, ERP, Bar coding, intranet,

extranet, internet to reduce inventory level without stock out situation

SummaryInventory levels are affected by customer service expectations, demand uncertainty, and , the flexibility of the supply chain

For products with high uncertainty in demand , a more responsive supply chain and larger buffer inventories may be needed to meet a desired customer service level

Firms with high customer service levels may gain a competitive advantage

Those who understand their demand recognize stock out costs and carry appropriate levels of inventory are ultimately better able to effectively manage inventory and provide the desired service level to customers.

Thank you

Thank you