How does aggregation affect safety inventory in different geographical regions?
In case demand in different geographical regions is about the same size and independent, aggregation increases safety inventory by the square root of the number of areas aggregated. False
Does aggregation reduce the standard deviation of demand?
Aggregation reduces the standard deviation of demand A) only if demand across the regions being aggregated is perfectly positively correlated. B) only if demand across the regions being aggregated is not perfectly positively correlated.
How can decentralized logistics help small businesses stay competitive with Amazon?
To better control the last mile, they are looking at opening up to 3,000 Amazon Go stores by 2021 where customers can purchase online and conveniently pick up their items on the way home. To compete with that level of expectation, decentralized logistics can help small e-commerce businesses stay competitive with companies like Amazon.
Is decentralization better than centralization in supply chains?
Companies are realizing that the cost-saving measures that once worked so well are now hindering them from being the agile supply chain that their customers are beginning to expect. The biggest reason why decentralization is better than centralization is the flexibility and data to adapt to market demands quickly.
What increases as the safety inventory increases?
On one hand, raising the level of safety inventory increases product availability and thus the margin captured from customer purchases. Raising the level of safety inventory however, increases inventory holding costs.
Is stock that is carried to satisfy demand that exceeds the amount forecasted?
Cycle inventory is inventory carried to satisfy demand that exceeds the amount forecasted for a given period.
What kind of availability measures is the fraction of demand that is filled from available inventory?
Product fill rate is the fraction of product demand that is satisfied from product in inventory.
What is product fill rate as the required fill rate increases How should the safety inventory change increase or decrease?
The fill rate increases and the cycle service level decreases as the safety inventory is increased. For the same safety inventory, an increase in lot size increases the fill rate but not the cycle service level. The required safety inventory grows rapidly with a decrease in the desired product availability.
What are the four 4 primary reasons that companies hold inventory supply chain?
4 Primary Reasons for Carrying Safety Stock.Protect against unforeseen variation in supply.Compensate for forecast inaccuracies (only when demand exceeds the forecast)Prevent disruptions in manufacturing or deliveries.Avoid stock outs to keep customer service and satisfaction levels high.
What is safety or buffer stock?
Buffer inventory (also known as safety stock, supply chain safety net, or contingency stock) refers to a surplus of inventory that is stored in a warehouse in case of an emergency, supply chain failure, transportation delays, or an unexpected surge in demand.
What are the measures of product availability?
The common measures of product availability discussed in this chapter are product fill rate, order fill rate, and cycle service level (CSL). The product fill rate is the fraction of product demand that is satisfied with the product in inventory and should be measured over specified amounts of demand rather than time.
What are some of the ways companies can use are using to reduce the level of safety inventory required but does not adversely affect product availability?
12 Ways to Reduce InventoriesReduce demand variability.Improve forecast accuracy.Re-examine service levels.Address capacity issues.Reduce order sizes.Reduce manufacturing lot sizes.Reduce supplier lead times.Reduce manufacturing lead times.More items...•
How do you determine the optimal level of product availability?
) = The margin lost by a firm for each lost sale because of stockout. The relationship between the cost of overstocking and the cost of understocking determine the optimal level of product availability.
How are safety stock levels set?
To calculate safety stock, work out your average daily use for a product and multiply it by its average lead time – how long it takes, in days, to arrive once you place an order. Then subtract this number from your maximum daily use times your maximum lead time.
What is safety stock in supply chain management?
According to the APICS Dictionary, safety stock is inventory that is carried to protect against forecast errors, as well as fluctuations in demand or supply.
What is safety stock planning?
Safety stock is a term used by logisticians to describe a level of extra stock that is maintained to mitigate risk of stockouts (shortfall in raw material or packaging) caused by uncertainties in supply and demand. Adequate safety stock levels permit business operations to proceed according to their plans.
1. Information Centralization
Redbox uses information centralization to virtually aggregate its inventories of DVDs despite having tens of thousands of vending machines. The company has set up an online system that allows customers to locate nearby vending machines with the DVD they are searching for in stock.
2. Specialization
Most supply chains provide a variety of products to customers. When inventory is carried at multiple locations, a key decision for a supply chain manager is whether all products should be
3. Product Substitution
Substitution refers to the use of one product to satisfy demand for a different product. Substitution may occur in two situations:
4. Component Commonality
In any supply chain, a significant amount of inventory is held in the form of components. A single product such as a server contains hundreds of components. When a supply chain is producing a large variety of products, component inventories can easily become very large.
5. Postponement
Postponement is the ability of a supply chain to delay product differentiation or customization until closer to the time the product is sold. The goal is to have common components in the supply chain for most of the push phase and move product differentiation as close to the pull phase of the supply chain as possible.
What is decentralization in logistics?
Decentralizing is an agile supply chain solution by definition, and can be done in phases. When you decide to move your business forward with a decentralized logistics solution, you can roll it out strategically. My team and I specialize in decentralized logistics solutions.
What is centralized distribution?
Centralized distribution is the traditional network that most businesses are familiar with. In the centralized distribution model, operations are typically limited to a “central” location. If there is more than one hub, the locations may be geographically spaced to handle East and West coast time zones or area-specific product lines.
Why do businesses overstock inventory?
Just like the cost-effective solution used to be centralized distribution, businesses used to overstock inventory in case of unforeseen spikes in demand. While this did solve the problem, it tied up cash in inventory, increased the chance of damage, and consumed large amounts of real estate.
Why is decentralization better than centralization?
The biggest reason why decentralization is better than centralization is the flexibility and data to adapt to market demands quickly.
What is the supply chain?
The term supply chain refers to the many links that a product goes through on the way to a customer. The efficiency of that supply chain is a function of the amount of cost and effort to move the product, and how quickly the product needs to be moved.