Covers (1) The theory of managing inventory, (2) How to forecast; (3) The bull whip effect; (4) The Law of Logistics; and (5) Case studies

1. INTELLIGENT INVENTORY CONTROL
Behaviors & Tools
May 22, 2013

2. FLOW
 The Theory
 Forecasting Right
 Bullwhip
 Laws of Logistics
 Case Study – IRAQ
 Q&A

3. INVENTORY THEORY

4. WHAT DOES IT CONSTITUTE?
 that is sold day in day out - cycle stock
 which is on the move - frozen stock
 built for an event or season - anticipation stock
 kept for protection against variability - safety stock
 But most importantly it is $$$ blocked

5. IT DEPENDS ON …
α Lead Time
α Demand Forecast
α Service Level
α Frequency of Sale
α EOQ’s
β Shelf Life
β Distance from Source
β Logistics Cost
β Customer Tolerance
β Supplier Reliability
β Capacity
β Profitability
β Lost Sales Acceptance

6. BULLWHIP EFFECT

7. It creates large swings in demand on the supply chain resulting
from relatively small, but unplanned, variations in consumer
demand that escalate with each link in the chain.

8. LAWS OF LOGISTICS

9. Circular References
Volatility is attributable to time lags
Time lags are inserted to optimise functional cost
Cost is not necessarily lowered by slowing things down
Slowing things down is a function of variety and complexity
Variety and complexity mean it all gets ‘too difficult’
which is why we don’t trust anyone & we slow things down more
adding more time creates volatility
volatility costs money so we add more time
adding more time makes us careless and unreliable
unreliability requires focus so we form BUs and add more complexity

10. LAW # 2: TOTAL COST
“The total cost of sourcing, converting and delivering
product is seldom the sum of the lowest functional
costs of each element in the supply chain”
 lowest cost manufacturing programs are not enough
 Driving down cost in specific area can have impact in other

11. ULTIMATELY: COUNTER-INTUITION
“The normal human response to the effects inefficiency
is to introduce delay in an attempt to increase
certainty which simply makes the situation worse -
effective distribution design can be counter
intuitive”

12. CASE STUDY - IRAQ

13. LANDSCAPE
 33 million people growing at almost 3%
 Half the population is under 21 years of age
 GDP of over USD 130 billion growing at 10%
 Food consumption to grow ahead of population
 Major consumers of yoghurt and cheese
 A very important market for us!

14. CHALLENGE
 Acute power shortages
 Electricity supply fulfills only about 2/3rd of demand
 Transport network both insufficient and old
 Low purchasing power with one fourth population
below poverty line
 Volatile regulatory environment
 A very fragile cold chain!

15. TOOLS
 VMI / SMI / JIT
 Kanban to achieve JIT (mfg)
 iLog for Design of your SC
 inFlow, Inventoria, Stock it Easy for
inventory management
 GT Nexus for In Transit Info
 Slingshot, Forecast Pro, Epicore, JDA for
demand forecasting

16. QUESTIONS?
Acknowledgments
Cranfield University
Accenture
Kellogg School of Management
Procter & Gamble Ltd.

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