Transportation and Logistics Slides Presentation

transportation and logistics

1. SCM 105-200 Transportation and Logistics Class Seven October 2, 2025 Professor Asmussen (Larry)

2. Agenda ABA Module Two Presentations Chapter Seven – Inventory, Part One Assignment Four Inventory Discussion Topic Questions

3. Practice Operations Module Two Managing Suppliers Individual Presentations

4. ABA Individual Presentation Rubric

5. ABA Individual Presentation Schedule

6. Inventory Chapter Seven

7. Overview Chapter Seven focuses on Inventory, an important topic. It is in depth enough that we will cover over three different discussion. Inventory decisions are both high risk and high impact throughout the supply chain.

8. Objectives Understand Inventory Functionality, Definitions and their relationship to lost sales and customer dissatisfaction. Apply the Inventory Carry Cost and overstocks impacts to manufacturing. Take these two concepts and demonstrate how good Application Inventory Planning practices mitigates risks to both service and cost.  Pages 161-174

9. Inventory Functionality & Definitions Inventory Risk Manufacturer –long term risk; raw materials, Work in Process (WIP) finished good inventory. Wholesaler – in between and tries not to approach breath of Retailer. Retailer – wide variety of product (Finished Goods) but not one product very deep. Who has the highest inventory risk?

10. Inventory Functionality Geographical specialization ; positioning across multiple manufacturing and distribution locations. Decoupling ; utilizing economies of scale at a single facility by operating at peak efficiency and not being constrained by the slowest component. Supply/demand balancing ; bridging gaps in inventory availability and allows consistent consumption. Buffering uncertainty ; safety stock to cover surges in demand or unexpected delays.

11. Factors Influencing Inventory Levels Meet specific service level objectives Meet different service objectives depending on the value of the customer to the firm. To maximize available cash. To maximize profitability from inventory investment. Take advantages of transportation economies of scale. Meet the overall budget constraints established by the firm . To maximize the production economies of scale. Prices are set to promote sales of obsolete or dated product.

12. Inventory Strategy and Rationale (Table 7.2)

13. Inventory Definitions Inventory Policy (Decisions) What to purchase/manufacture, when to purchase/make it, and in what quantity. Independently manage at each stocking facility or centrally manage all stocking facilities. Service Level (performance target) Performance cycle: elapse time between the release of a customer order and receipt of that order. Case fill: percent of cases or units ordered and that are shipped as requested. Line fill: percent of order lines filled completely. Order fill: percent of customer orders filled completely. Average Inventory : inventory rolling mean across time.

14. Sawtooth Inventory Model Open Excel File

15. Types of Inventory Order or Production quantity : amount of inventory “ordered” Transit inventory : inventory typically in transit between facilities but not received. Obsolete inventory : stock that is out-of-date or that has not experienced recent demand. Speculative inventory : bought prior to need to hedge a currency exchange, take advantage of a special discount, or prepare for a potential work force disruption. Safety stock : maintained to protect against demand and performance cycle uncertainty.

16. Inventory Cycle for Typical Product 1 (Order Quantity/2) + “Other” Stock Average Inventory ½ Order Quantity = $20,000 Ord Qty = $40,000 ($70,000 – $30,000) Avg Inv = $50,000 ($20,000 + $30,000)

17. Average Inventory across Multiple Performance Cycles Sawtooth Diagram Orders are scheduled to arrive just as just as the last unit is sold. JIT, no safety stock required. Rate if Sale: 10 units per day. Rate of replenishment: 10 days. Reorder Point : defines when a replenishment order is initiated or placed. What is the reorder point? What does that mean? What is the average inventory? (how did you determine that?)

18. Inventory Turns The amount of times inventory “turns” in one year. Prior example, rate of sale 10 units per day and average inventory is 100 units. Given 240 working days Annual Sales = 2,400 units. Inventory Turn = 24 turns per year , 2,400 units of annual sales/100 units in average inventory. 24 purchases will be required. What are the two costs here?

19. Economic Order Quantity (EOQ) Balancing of the two critical costs Cost to order Cost to maintaining inventory. Scenario One Inventory Turn = 8 turns Annual Sales = 2,400 (240 days) Rate of Sales = 10 units per day. Average Inventory = 300 units Eight purchases per year. Scenario Two Inventory Turn = 48 turns Annual Sales = 2,400 (240 days) Rate of Sales = 10 units per day. Average Inventory = 50 units Forty-Eight purchases per year.

20. # of Stock vs. Inventory Turn Weeks of Stock Months of Stock Average Inventory/Sales Demand Inventory turn over = Annualized Sales/average inventory Monthly Demand = 25 units Average Inventory = 30 units Unit Cost = $10 What is the Months of Stock? What is the Inventory Turnover?

21. Independent vs. Defendant Demand Dependent Demand : component parts that are assembled into final products such as for automotive or electronic manufacturers. Manufacturer’s production schedule is typically shared with suppliers. Independent Demand : component parts that consumers want/need to replace used or broken parts. Retailers can forecast demand of history but still must anticipate consumer demand by having inventory pre-positioned in their store.

22. Assignment Four Inventory Definitions (1)

23. Inventory Carry Cost Expense (investment) associated with maintaining or holding inventory. Financial Accounts relevant to inventory carry costs include; Capital ; cash to replace capital invested in inventory can be obtained in the money market at that rate. ( Hurdle rates : expected or targeted return on investment). Taxes on inventory held. Insurance based on estimate risk or loss over time. Obsolescence , product that ages beyond recommended sell-by date. Storage , product holding, not product handling.

24. Inventory Carrying Cost Components Heating & Lighting in a warehouse? Inventory Obsolescence, Cost & Loss? Material Handling? Taxes? Insurance?

25. Calculating Inventory Carry Cost Average Inventory = $1 million Carry Cost = 15% Capital = 10% Taxes = 1% Insurance = 1% Obsolesce = 1% Storage = 2% Annualized Carry Cost = $150,000 Accounting typically looks at end of period figures. Why would this not be a good idea? Why must you keep this in mind? Capturing reduction in inventory, this can be applied to show cost savings to the bottom line. If you reduced the average inventory by 10% what would the new cost to carry? What would the cost savings be?

26. Assignment Four Inventory Carry Cost (2)

27. Planning Inventory When To Order? R = D * T + SS R = reorder point in units D = average daily demand in units T = average performance cycle length in days (lead-time) SS = safety stock What if no safety (or other) stock? What is “R”, if…? D = 20 units per day T = 10 days SS = Zero(0) What if you want to hold 100 units of Safety Stock?

28. How Much to Order? Average inventory is equal to one-half the order quantity. The greater the order quantity, the larger the average inventory? the larger the annual carry cost? However, the larger the order quantity, the fewer replenishment orders required per planning period? the lower the total ordering cost?

29. Assignment Four Inventory Reorder Point (3)

30. Economic Order Quantity (EOQ) Balances cost or ordering and the cost of maintaining inventory. Average inventory is equal to one-half of the order quantity. The greater the order quantity the greater the average inventory and thus the greater the annual carry cost.

31. EOQ Problem Annual Demand 2,400 Units Unit value at cost $5.00 Inventory carry cost percent 20% Ordering cost $19.00 per order

32. Major Assumptions of EOQ Demand is satisfied Rate of demand is continuous, constant and known Replenishment performance cycle time is constant and known There is a constant price of product that is independent of order quantity or time There is an infinite planning horizon There is no interaction between multiple items of inventory No inventory is in transit No limit is placed on capital availability

33. Volume Transportation Rates Generally, the greater the weight of an order, the lower the cost per pound of transportation. Less than Truckload (LtL) versus Full Truck. Multiple or mix of items. FOB (freight on Board) origin purchase means that the buyer is responsible for freight cost and risk while the product is in transit. If not FOB, then the transportation cost must be added to the purchase price to determine the value of goods tied up in inventory.

34. Other EOQ Considerations Production lot sizes, how often and how much? Open to Buy Credit limits Handling unitization (pallets) Quantity Discounts

35. Assignment Four Inventory EOQ (4)

36. Discussion Topic Excel, Friend or Foe? Did you prefer using Excel or Paper/Pencil? What comfort level do you have with Excel? Did your preference &/or comfort change after participating in this class? What would you like to see done differently to help you and others out?

37. Thank you! What’s due? Smart Book Chapter Seven Discussion Topic Week Seven Assignment Four Exam Two available next Thursday.