SUPPLY CHAIN MANAGEMENT

PLANNING AND
MANAGING
INVENTORIES IN
SUPPLY CHAIN
GROUP 7
I. INVENTORY
PLANNING
Inventory Planning
The process of determining the
optimal quantity and timing of
inventory for the purpose of
aligning it with sales and
production capacity.

Inventory planning helps lower the

costs of keeping items in stock and
helps make sure there is enough
stock for making and selling items.
Inventory Planning Objectives
Forecasting Controlling Costs Efficient Storage
a systematic When materials
The method of
process of using are stored
reducing
a marketing plan properly, getting
business
to predict future them to
expenses by
sales and, customers
managing and
thereby, future becomes much
analyzing faster and more
inventory
financial data. efficient.
requirements
Hotel Inventory Management
Hotel inventory management is an effort to
control perishable inventory.

Perishable inventory is inventory that

cannot be sold after a set period. To
avoid time-sensitive inventory from
expiring, hotels need to be able to
balance supply and demand, thereby
maximizing returns.
 Essentials of Good
Inventory Planning
 1. Inventory Planning
Technology
You can use software that initiates orders to ensure
you top off stock to the appropriate level and
prevent overstocking.

Digital planning systems provide historical data for

forecasting and a view into current inventory levels.

The right software can help you scale your business.

 2. Inventory Planning Roles
and Responsibilities

Inventory planners analyze trends and provide

forecasts.

Ideally, inventory planners work with supplier

managers, purchasing and contract management
leaders, supply chain financial analysts, and
production and quality control stakeholders.
 3. Inventory Planning
Policies, Processes and
Procedures
Inventory planners analyze trends and provide
forecasts.

Ideally, inventory planners work with supplier

managers, purchasing and contract management
leaders, supply chain financial analysts, and
production and quality control stakeholders.
Factors in Hotel
Inventory
Management
1. Calculate Room Costs
Understanding these numbers will help you balance
covering your costs and yielding the inventory
during high-demand periods to maximize revenue.

2. Pricing
By analyzing inventory regularly, you can make
adjustments, set prices relative to competitors,
simplify revenue processes and give guests the
sensation that they are getting the best value for
their money.
3. Distribution
Distribution is key to maximizing revenue because
distribution is how your inventory gets into the
hands of your potential guests.

4. Market Segmentation
Understanding the market allows you to establish
prices that are relevant to that particular market and
distribute your rooms across the appropriate
channels.
 II. CYCLE
INVENTORY
II. Cycle Inventory
The part of total inventory
that is available to meet the
usual demand. It is comprised
of the products that will be
used first to fulfill customer
orders in the standard
business cycle of a company.
 Role of Cycle Inventory
Larger Cycle Inventory = Longer the lag time
(production of products and its sales)
makes the firm vulnerable to demand
changes of the market

Lower Cycle Inventory = Decreases the lag time

(matches with the demand of the market)
it decreases the organization working
capital
 Goal of Cycle Inventory
Understocking: Demand exceeds amount available
Lost margin and future sales

Overstocking : Amount available exceeds demand

Liquidation, Obsolescence, Holding

GOAL: Matching Supply and Demand

 Role of
Inventory in
SC
Role of Inventory in SC
Warehousing and Inventory Cost

Regional Field
Warehouses Warehouses
Supply

Pro
du
cti
on
/Pu
rch Transportation Cost
as
ec
os
t
Cycle Inventory = lot size (Q)
2
A lot size (or batch size/Q) : is the quantity
that a stage of supply chain either produces
or purchases at a specific time.
 Example:
The lot size of an item is 100 units, and the
ordering cycle averages for 4 months. What
is the cycle inventory?

Given:
Lot size = 100 units
Time = 4 months
 Types of Demand
Dependent Demand Independent Demand
Demand for items used to Demand for items used by
produce final products external customer
 Improve customer service
Reduce Inventory investment
Increase the profitability of business
Increase productivity
Inventory is insurance
Inventory is expensive
Items deterioration
Products obsolescence

Methods for Supervising Inventory

 III. SAFETY
INVENTORY
III. Safety Inventory
Safety Inventory is the stored
products that are used to
reinforce the demand that
exceeds the forecasted
amount in the given period of
time.
 Safety Stock
An extra quantity of a product which is
stored in the warehouse to prevent an out-
of-stock situation.

SS = (MDU x MLT) - (ADU x ALT)

SS = (MDU x MLT) - (ADU x ALT)
MDU = Maximum Daily Usage
the maximum number of units sold in a single day
MLT = Maximum Lead Time
the longest time it has taken the supplier to deliver
the stock
ADU = Average Daily Usage
the average number of units sold in a day
ALT = Average Lead Time
the average time taken by the supplier to deliver
the stock
 Example:

SS = (MDU x MLT) - (ADU x ALT)

Safety Inventory is Carried
Safety inventory is carried when
the demand is uncertain.
Safety inventory is the backup supply
until the next batch for replenishment
drop in.
Important Role of Safety Inventory
The average inventory is the forecasted demand
of the company with the addition of safety
inventory.

Raising the amount of safety inventory provides

higher availability and customer service and thus
the margin captured from customer purchases

While raising the amount of safety inventory the

safety inventory also raises therefore this will
increase the companies holding cost.
Two Questions to Answer in
Planning Safety inventory
What is the appropriate level of
safety inventory to carry?

What actions can be taken to improve

product availability while reducing
safety inventory?
Measuring demand availability
Measuring product availability
Replenishment policies
Evaluating cycle service level and fill rate
Evaluating safety level given desired cycle
service level or fill rate
Impact of required product availability and
uncertainty on safety inventory