Inventory Management of Rarely Moving Materials

noreply@blogger.com (Lalit Khandelwal) — Wed, 26 Dec 2007 11:46:00 +0000

Rarely moving materials have very limited nos of issues over a long period of time. If the rarely moving material is critical and unpredictable in consumption then it is necessary to stock, but how much to stock?

Let us analyze the below mentioned material

Material code : SKU10
Procurement lead time : 6 Months

Issued Date--------------Request Qty----------Issued Qty
10/12/2000-----------------40------------------------40
17/09/2003-----------------37------------------------37
24/12/2004-----------------52------------------------50
16/05/2006-----------------45------------------------42
25/12/2007-----------------35------------------------32

So over a period of 7 years, there have been 5 nos of issues for the material and each issue has different qty.

Before going into further detail let us explore few concepts

Service level = 1- Total Nos of reservations served/Total Nos of Reservation

Fill Rate = Total Quantity issued against a request/Total requested Qty of a particular request

Let us analyses again the issue pattern of material SKU10

Demand dated 24/12/2004 was having service level of 100% but fill rate is not 100%,
It is 50/52 x100 = 96.15%

Now it can be seen that issue pattern of the material SKU10 is not normally distributed but discretely distributed. Discrete portability distribution can be applied to find the probility of issue of this material during its lead time.

There many discrete probability distribution such as

Binomial Distribution
Poisson Distribution-Which is limiting case of binomial distribution
Bernoulli distribution
Geometric distribution,
Here Poisson distribution is enough to help us in resolving our query

P (λ, k) = λke−λ / k!

For the above issue pattern

λ = ((5-1)/7)/2 = 0.28

Probability that there shall be no issue during lead time P(0.28,0) = 0.280e−0.28 / 0! = 0.752
Probabilty that there shall be exactly during lead time P(0.28,1) = 0.214324

Probability that there shall be one or less than one issue = P(0.28,0) + P(0.28,1) = 0.966

So for maintaining a service level of 96.6% during lead time we assume that there shall be 1 No of request during leading time.

But what could be the request quantity against this request?

To answer this question we should first decide what should be the fill rate. Let us assume desired fill rate for this material is 95%

Norm inverse for probability of 95% with standard deviation of above requested quantities and mean value = 51.85381 ~52(After rounding off)

It can be calculated as below.

Expected Request Quantity = Mean Value of requested quantity + k* Standard Deviation of the requested quantity
k = Factor for fill rate

Now for 95% of fill rate and 96.6% of service level qty to be kept as safety stock = Nos of request during Lead time x Qty per request = 1x52 =52

So 52 Nos shall be the Re-order point qty for the fill rate of 95% and service level of 96.6%. If the stock falls below 52, procurement proposal should be generated to maintain the desired service level and fill rate.

Contracting Process

noreply@blogger.com (Lalit Khandelwal) — Thu, 20 Dec 2007 12:21:00 +0000

Click on the Image to View

This is atypical process for
finalisation of rates for
pre-negotiated buy

What is Supply Chain Management

noreply@blogger.com (Lalit Khandelwal) — Wed, 19 Dec 2007 08:42:00 +0000

Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.
Some experts distinguish Supply Chain Management and logistics, while others consider the terms to be interchangeable.

Supply Chain Management is also a category of software products.
Supply chain event management (abbreviated as SCEM) is a consideration of all possible occurring events and factors that can cause a disruption in a supply chain. With SCEM possible scenarios can be created and solutions can be planned.

SCM Education

Inventory Management of Rarely Moving Materials

Contracting Process

What is Supply Chain Management