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A "lost sales" approach to determining inventory levels at retail locations  Brian Egles www.bjpce.co.uk 07785 527324
The Beer Game…
… predicts amplification
Small retail stores
The Supply Chain Factory Imports Dedicated Warehouse Retail Stores Customer Off-the-shelf Sales Customer Catalogue Sales Distributor NDC Other Manufacturer Imports 5 – 70 days 5 – 70 days 1 - 3 days 1 - 3 days Next day
Bullwhip seen in practice
Very intermittent demand
… with no regular pattern
Starting situation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Reorder point method
Expects normal demand
More like POISSON distribution
Use to simulate current policies
Conclusion of initial analysis ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Estimating the lost profit ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Lost profit example If: Target stock (order up to) level = 1 If:  Demand = 2, Risked sales = 1 with probability 0.0503 = 0.0503 Demand = 3, Risked sales = 2 with probability 0.0065 = 0.0130 Demand = 4, Risked sales = 3 with probability 0.0006 = 0.0018 … ..until probability effectively 0 Total  = 0.0653 Estimate of lost profit = 0.0651 x 100% x 100% x £100 x 63 = £409 =POISSON(sales, average, 0)
What will average inventory be? Note: different if inventory would go below zero but that is not relevant
Lost profit v inventory tradeoff Minimum
Effect on examples (1)
Effect on examples (2)
Effect on examples (3)
Implementation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Result ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Simulation to validate method Supply Warehouse Retail Generate probabilistic demands Set key decision variables (e.g safety stock) Simulate replenishment Simulate replenishment Calculate total inventory Determine lost sales Establish overall cost objective
Thankyou Brian Egles www.bjpce.co.uk 07785 527324 http://bjpce.co.uk/index.php/contactlist/thesisrequestmenu

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A Lost Sales Approach To Determining Inventory Levels At Retail Locations - 2010 Sap Conference

Notes de l'éditeur

  1. Demand in lead Demand in review Std dev (for normal only) Cost Holding cost % No reviews per year Margin% Loss chance % Max target stock to try before giving up and reporting an error F function = POISSON Smin minimum service level for warning