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Inventory level justification

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  • #34168

    torres
    Participant

    Hi, I’m looking for the info re inventory management.
    The case is the following: a company has 1 central and 8 regional warehouses around the country. All SKUs are represented on each of them. Goods can be sent only from central to regional w/hs. No shipments between regional w/hs or backwards to the central one. Case fill target 95% on all SKUs. Transit times from central to regional w/hs vary from 2 to 25 days, so safety stocks vary greatly aswell.
     I need to proof that total inventory will be higher than if we had one warehouse only. There should be a coefficient which shows how number of warehouses and opening of each extra one (with this or that transit time) affect total inventory.  Any ideas??
    Is there any source on the web where this info could be found??
    Thanks a lot!!
     

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    #93847

    Adam L Bowden
    Participant

    Hi Julia,
    I may be able to help you with the necessary calculations etc to proove out your case.  There is little that you will find of use on the net to my knowledge that will help you out when considering your dilemma from a systems perspective.  I’m currently on Vacation until the new year – so if you can wait until then I’d be glad to help you out. My e-mail address is [email protected] – ph no 720 332 3737 – “USA – Mountain time”.  Call/E-Mail me your contact details & I will follow up when I return to work.
    Best regards,
    Adam

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    #93853

    John J. McDonough
    Participant

    Doesn’t this sound like a candidate for a Monte Carlo simulation?  Even tho there may be more analytic ways of getting at “the answer”,  a simulation would help get a more intuitive feel for what the risks are, and that would certainly give me a more comfortable feeling. before I made inventory adjustments.
    –McD
     

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    #93985

    torres
    Participant

    Do I get it correct that you suggest to simulate the situation? The case exists in practice and risks are known. Should I describe in more detail??
    Thanks, Julia

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    #93987

    Qui Gon Jinn
    Participant

    Unless I’m missing something I think the answer is obvious. If you mean you want to be at 5% safety stock at all warehouses, i.e., central and the regionals, you would have, on average, 5% of projected demand at central plus 5% of projected demand at regionals. This would be a total of 10% of demand with regionals and a central vs. 5% for a single warehouse only.
    I agree with the suggestion to run a simulation. I’m pretty sure it will show you will have a higher liklihood of stock-outs for the regional warehouses, in addition to the higher inventory. Plus there may very well be a lot of cost for expedited freight.
    These are relatively easy things to measure. What you must also consider, however, is effectiveness and efficiency of your customer support, e.g., fulfillment time and cost to supply from the central warehouse to the customer. For instance, will you have a lot of expedited freight? How will it affect response time? You could have higher shipping costs and larger risk of shipping delays.
    But my bet is that you won’t. I’ll bet that going to a central warehouse will reduce total inventory, workers required, variation in demand, and probaly even delivery time as well. I’ll bet you give better customer service with lower costs. BUT, you need to consider these things to look at improving your process.
    Good luck. 

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