Supply Chain Management Report 2022

Supply chain management
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Executive summary
The supply chain is segregated to the various department that ensures the supply of goods from
manufacturing to the end-user and the related logistics. All details that pertain to the use of the
supply chain and Inventory are explained in this report. The main objective of this report is to
internalize and expound the four elements in a supply chain. The features include inventory
management. Under it, there is a typical warehouse, inventory cost, and holding: the modern
supply chain and its merits. The inventory principles and applicable cases are also discussed—
the advanced inventory system and the network inventory control strategies, among other sub-
factors.
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Contents
Inventory management....................................................................................................................1
Typical warehouse.......................................................................................................................1
Holding and not holding Inventory costs.....................................................................................1
Modern supply chain demands....................................................................................................2
Inventory principles.........................................................................................................................2
Model one: instantaneous economic order quantity stock replenishment...................................3
Graphical representation..............................................................................................................3
The lead time, reorder level and reorder point.............................................................................5
Modern inventory systems...............................................................................................................5
Network management of inventory.................................................................................................6
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Inventory management
Typical warehouse
Inventory management is the supervision of the stock items and non capitalized assets. The
inventory management is aimed at keeping proper records of all transactions involved from
production up to the sake. The Inventory ensures the supervision of the flow of products from the
output to the warehouse. And from the warehouse to the point of sale and even selling1. All the
information about the new or recalled product as it enters and leaves a warehouse or maybe
position of purchase. A typical warehouse is a storage building of goods used by exporters,
importers, wholesalers, and transporters, among others. The warehouse facilitates a supply chain
flow by holding assets for supply logistics to be laid down. The warehouse, therefore, helps the
suppliers and transporters to ensure steady supply by keeping goods for the immediate amount
on demand or order2. Inventory management helps truck all expenses during the procurement
and holding of assets. It can be used for decision making and market decisions but the business
supply chain manager.
Holding and not holding inventory costs
Holding inventory costs involved all the cost uncured during the holding of the stock or goods in
the warehouse or the storage3. Holding Inventory keeps the supply process continuous. The coat
of not holding Inventory involves a lot of the risks which are viewed as drawbacks for the
business. The cost of not maintaining Inventory includes Loss of sale due to delayed supply,
higher transport cost due to rush orders, and inefficient production scheduling, among others. It
is better to hold inventory costs than suffering the costs of not holding inventory4. Keeping
Inventory helps in supporting if the supply chain by giving a continuous supply environment.
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Modern supply chain demands
The modern supply chain requires a lot of considerations since many competitors are coming up
with new inventions that keep them too in the market. The current supply chain requires a rapid
production rate that translates to an adequate supply of raw materials. The producers also need to
minimize the cost of production by ensuring no poor allocation of the resources. The modern
supply chain will require anticipatory inventory5. For example, many times, the output will
depend on the anticipation of the Inventory. The long-term historical demand for a product will
be the original product in the supply chain. Again an annual stocking is a need for the modern
supply chain. Supply chain management is, therefore, responsible for ensuring the goods are
ready and available during the demand period before orders are placed for the customer
reliability on the business. The supply chain will also require a robust interface between the
supply partners. It implies that the final product to be availed to the markets is inspected and
handled by the warehouse department. The warehouse department should, therefore, ensure that
all goods are put to the right supply quantity and quality. The best products offered will be
correct and appeal to the customers. It is a supply chain demand that critical customers require a
vital customer service role in the warehouse. It is because of the essential customers will not be
attended fast they will give up and may end up painting the company a bad image.
Inventory principles
The inventory management models will explain the inventory principles in detail, as shown in
the models below. The calculations and formulas are clearly shown to determine the required
parameters. The basic model holds to explain the fixed period or quantity of the supply and
demand6. The ABC Pareto curve has a clear illustration of the specified items.
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Under inventory principles, there are around four models that explain the order quantity and
quality to fit the economic environment of the business minimizing the inventory costs.
Inventory models are structured with two main branches the deterministic and probabilistic. The
probabilistic holds fixed quantity systems and fixed period systems. While the deterministic also
branches to the fixed quantity and fixed period systems. The structure is as shown below.
Model one: instantaneous economic order quantity stock replenishment
The fundamental inventory model is characterized by a known, constant, and deterministic
demand7. The stock replenishment has a zero lead time. It also has a fixed price of materials
meaning no quantity discounts8. Ordering cost is not directly proportional to the order quantity.
Graphical representation
The figure below represents a graph of the basic model.
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Let letter D be the demand per year or units per year
Co = costs of ordering
Ch is the Inventory carrying costs the cost of transportation
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Cp is the price per unit
While Q is the order quantity.
Q* is the economic order quantity, and N is the number of an order placed per year.
Tc is the total cost per year hence.
The lead time, reorder level and reorder point
The reorder level relies on the lead and the reorder point. The time the company takes to supply,
therefore, is the lead time, and it is a determinant of the order level 9. The calculations can be
fined as follows
The reorder level is given by multiplying the average demand by the lead time. The need and
lead-time are therefore carried at the same units of time10. However, if a company has maintained
a safety stock, the reorder level will be given by multiplying the average demand by lead time by
safety time. The quantity on hand and the quantity ordered must sustain the system until the next
order is received. The diagram below shows the order point and level.
The economic order quantity is the quantity that a company can acquire through purchase to
minimize inventory costs. The costs include holding fees, storage costs, and order costs11. The
economic order quantity is directly proportional to the total annual cost of stock management.
The holding cost will, therefore, increase with the increase in the stock quantity. They can be
reduced by placing lots of small orders. Acquisition costs will also increase with the number of
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orders placed. Larger orders can, therefore, reduce the acquisition costs. The annual demand is
always constant and known in advance. The unit purchase price is also regular. The order
deliveries are down at the same time and in one batch. The delivery time should be known and
constant. The unit storage cost and order cost are regular. And finally, no stock shortages. When
calculating the economic order quantity, there are several considerations to be effected to realize
economic order quantity8. The annual consumption denoted by letter N and the acquisition cost indicated
by letter cc. The unit purchase price of a product is denoted by p, and finally, the stock holding
rate, which is denoted by H.
The following is the formula for calculating the economic order quantity.
EOC =
Modern inventory systems
The contemporary inventory system requires a demand forecasting that will ensure no materials
are out to waste. And also, that will provide no over and under supply12. The demand forecast
will be determined by the total cost of the product that entails the purchase and continuous
maintenance of such a product. The inventory forecast will depend on the following aspects. The
supply forecast determines the entry of the products into an organization 13. The price forecasts is
another depended that shows the expectations of future price movements. It may be down or
upwards.
Trends of demand over time are sometimes linear, which is having downward or upward
mobility. When non-linear changes of the market with an appreciating trend or depreciating
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trend. The demand here goes up at an increasing rate or goes down at an expanding rate14.
Finally, the last option is random, where the pattern of the order over time changes irrationally.
There are seasonal patterns experienced by the majority of the organizations. The seasonal
patterns are characterized by predictable, regular annual ups and downs. The ups and downs are,
therefore, cyclic as they have a consistent pattern to the subsequent seasons. There is also
smoothing. In this, the demand variations typically affect order patterns14. Therefore, the
inventory manager should determine what order to place and when.
The tracking signal is used for tracking inventory behavior. In case of variation of demand over
time, there is reliability for stock holdings to exceed expected limits. The tracking signal is
extracted and created from the forecast errors15. The tracking signal is not dependable when it
comes to alerting the inventory control manager about the risks to occur.
In the comparison of the effectiveness of new and traditional Inventory, one can know what the
best Inventory to choose is. The advanced Inventory entails three central management systems.
The systems are developed subsequently16. The first system is under material requirement
planning. The second one falls under manufacturing resource planning. Finally, the last one is
under Enterprise resource planning. The material requirements planning involves the production
planning, scheduling, and inventory control systems applied in management processes17. It uses a
straight forward process with the smooth flow of stock. It ensures the acquisition of raw
materials concerning the market demand a d supply capability of the organization. The material
requirement planning, moreover, involves the preparation of all the documents required to
facilitate the subsequent system. The material requirement planning pushes stock into the
warehouse as it moves out to give the sales staff a chance to make targets.
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Secondly, the manufacturing resource planning is basically for the manufacturing industry18. It
can identify inventory requirements based on manufacturing operations. Manufacturing resource
planning depends on the human intervention of the available workforce. It deals with the
organization of production materials under human intervention to produce new goods. Each
department provides the production plan or the bill of materials. and the materials are provided
for the organization. The master production schedule is used to determine the core operation. The
manufacturing process is derived from the entire business plan. The bill of materials has explicit
descriptions of the desired components and in order of urgency19. It has a close linkage to the
inventory management system, and it is critical. It covers purchasing sales and accounting
functions.
Enterprise resource planning is the central processing unit of the company. It latest all the
components of business management in various departments and treat them as the whole entity20.
The circumstances and effects of the operations propel the managers to use critical thinking to
make a decision. Its installation is done as a complete entity and not parts; hence it takes a long
time to integrate.
Network management of Inventory
When managing an inventory through the network, three basic supply strategies are assumed.
The first of all is the make to order strategy. The second strategy is the make to stock, and the
final approach is the design, manufacture, and fit. In the make to order strategy, the few
variations item sectors are made in large quantities. The network management of the Inventory
involves the process of keeping records of the IT or network assets that make up the Network 21.
IT software is used to scan. And compile all the documents and data about each point if the
network. It includes several routers, their make, and type and installation places with a serial
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number that helps truck the system. It has an IP address of all the devices and the used schemes.
It also includes the software type and licenses keys with precise indicated expiry dates. The
availed data helps the business with the estimation of the network size, network costs, capital
planning network, and physical network administration22. The organized network management
approach leads to accurate determination of the business requirements with stock control. The
network helps the business to keep the Inventory updated for customers’ satisfaction easily.
Since it is an automatic system, the system will directly show the size of the Inventory, and a
particular supply chain has over a specified period. It also helps forecast the demand for the
products on the evaluation of the smooth flow of goods and consumption.
Material distribution has a significant impact on a business. The distribution requirement
planning is the process in which commodities are delivered in a more efficient manner23. It
involves the determination of the number of goods and their establishment. After that, the exact
location is identified, and the right place is leading to specific time arrival. The distribution
requirement planning is very beneficial in the supply chain as it has the following merits. It leads
is to fast decision making. It allows for the utilization of demand forecasting. It leads to planning
initiation accuracy24. The MRP helps create cost awareness for the management personnel for
planning. It enhances customer services, and finally, it is a push it pulls method. The MRP leads
to the timely delivery of the manufactured goods to the customers. It optimizes the use of the
produced resources. It decreases Inventory hence decreased capital cost. However, the material
requirement planning can have adverse effects on the supply chain. Due to common mistakes,
some errors lead to inaccuracy. Due to inaccurate data, the Inventory may end up a mess.
Lean, being a systematic reduction of waste in operation, helps in identifying customer value and
identify ways of improving it via waste removal. Just in time, maintenance helps remove the
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debris before it is too late to avoid Inventory risks22. It helps provide the right material instead of
eliminating the waste. It means avoiding waste materials. Agile now helps the business to
respond to trends in circumstances of operation. While Leagile helps represent the latest iteration
of inventory management process24. All these aspects help maximize the efficiency of the
Inventory in the supply chain.
References
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