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Secrets Of Logistics Management
1. Discuss the relationship between service level, uncertainty, safety stock, and order quantity. How can tradeoffs between these elements be made?
Safety stock - Safety stock is used to describe that a level of extra stock maintained by companies to decrease the risk of stockout.Safety stock is held when there is uncertainty in the demand level or lead time for the product, it serves as an insurance against stock.
Running a successful business means ensuring customer satisfaction to the fullest extent possible. Time is a vital resource in business and not something that the consumer wants to waste. The ability to provide what the customer wants when he or she wants it is an essential element in logistical analysis. According to the business dictionary “Safety stock is the amount of inventory held as a buffer against mismatch between forecasted and actual consumption or demand between expected and actual delivery time, and unforeseen emergencies.
Inventory policy: Guidelines about what to purchase, when to take action and in what quantity.
Service level: Performance target specified by management. Defines inventory performance objectives. Measure in terms of order cycle and includes time, case fill rate, line fill rate, order fill rate and any combination of these.
Inventory: A business's inventory is one of its major assets and represents an investment that is tied up until the item is sold or used in the production of an item that is sold. It also costs money to store, track and insure inventory. Inventories that are mismanaged can create significant financial problems for a business, whether the mismanagement results in an inventory glut or an inventory shortage. Inventory management is a very important function that determines the health of the supply chain as well as the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures
An order quantity means that standard quantity, which should be indented on a supplier for each time an order, is placed. Order quantity must vary on the basis of frequency and quantum at which that order are placed. Service Level is a function of order quantity and amount stock. Both effects that how well a customer got serviced. As a supplier if you are unsure about the quantity placed by a customer and you invest a large amount in inventory. It will surely effect that you increase your safety stock level and higher costs. You can deny this by using electronic data interchange. So there may be a good communication between you and customer and you can reduce safety stock. So always insure a better interaction between you and your customers that what they actually need.
2. What is the difference between the probability of a stock-out and the magnitude of a stock-out?
We can say that the probability of a stock out is that amount of inventory is available to fulfill a demand. On the other hand the magnitude of stock out in depend on the FILL rate (fraction of customer demand that is met through immediate stock availability, without backorders or lost sales) So the main difference between is that probability of stock out depends on insufficient inventory and magnitude of stock out is depends on immediate stock availability.
3. Customer-based inventory management strategies allow the use of different availability levels for specific customers. Discuss the rationale for such a strategy. Are such strategies discriminatory? Justify your position.
There can be a strong possibility of discrimination in Allocation but Companies must consider their core and most important customers. If company got a loss in marketing in its product it may reconsider the further pursuing that segment in which they got loss. Company must take care of their food stocks and healthcare segment because these are very sensitive segments. So In case of inventory section companies must be liable to their customers.