Session 2 - Inventory Management

Session 2 - Inventory Management #

Dr Jose Escribano

Having previously covered some of the fundamental concepts and terminology that we will be using to study freight transportation, we will cover more advanced theory of Economic Order Quantity.

Due to the nature of logistics, one very rarely has access to certain information regarding future orders, and must prepare for potential demand variations. In this lecture, the concept of safety stock is discussed, as well as the different performance parameters used to calculate it.

Part 1 - Discounting #

In this session, we incorporate various modes of discounting into the Economic Order Quantity theory.

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Part 2 - Inventory Management under Uncertainty #

The second part of this session focuses on how we use the inventory to deal with uncertainty in our forecasts.

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Part 3 - Inventory Performance #

This part evaluates how different objectives affect our inventory management strategy.

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Part 4 - Multi-echelon Systems #

The last part of this session introduces logistics systems with multiple echelon levels and analyses the bullwhip effect through the supply chain.

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Jupyter Notebooks #

Notebook 2.1 - Inventory Performance #

This notebook provides a graphic of the measurement of the inventory performance affect safety stock requirements and the total logistics costs. Four different metrics are evaluated:

  1. Service level.
  2. Item Fill Rate.
  3. Cost per Stock-out.
  4. Cost of Item Short.

We strongly recommend you to experiment with different inventory parameters and observe how the safety stock requirements vary with the different performance indicator.

Tutorial Questions #

Tutorial 2 - Questions

Tutorial 2 - Answers

Files #

You can find a list of all files that we used this week here (Box).

Derivations of the inventory performance parameters and standard deviation of demand-over-lead-time are available here. Further reading on the bullwhip effect can be found here.

Reminder: Assignment #

Don’t forget that Assignment 1 is due on the 10th of February.