2024 Global Procurement Management

Chapter 4
Inventory management and lead time

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 Objectives of this Chapter
Provisioning systems
Order quantities and stock control
Materials requirements planning
Manufacturing resource planning
Enterprise resource planning
Just-in-time
Lean and agile supply
Vendor-managed inventory
Covid-19: just-in-case inventory?
Time and competitive advantage
On-time delivery
Lead-time improvement
Effect of Covid-19 pandemic on supply chains
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 Provisioning Systems

Provisioning systems involve the policies and

procedures that organizations use to determine which
items are kept in stock and the quantities that are
stocked. khai niem
These systems play a crucial role in ensuring that the
right materials are available at the right time to
support production and service operations. vai tro
Decisions regarding provisioning systems include the
size of requirements, timing of orders, and the
quantities to be ordered based on demand forecasts
and inventory levels quyết định liên quan

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 Order Quantities and Stock Control
điều hòa

Order quantities and stock control are essential

components of inventory management that focus on
regulating manufacturing programs and material
requirements. vai trò của sl order và kiểm soát hàng
Effective stock control involves maintaining optimal
inventory levels to meet demand while minimizing
holding costs and stockouts. effective
Decisions related to order quantities and stock
control include determining the size of requirements,
timing of orders, and quantities to be ordered based
on factors such as lead times, demand variability, and
economic order quantity calculations quyết định liên quan

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 Materials Requirements Planning (MRP)
requirements for components needed

kế hoạch yêu cầu vật liệu

Materials Requirements Planning (MRP) is a system

that translates the master production schedule into
net requirements for components needed to
implement the schedule. khái niệm
MRP helps in planning and scheduling production
activities by ensuring that the right materials are
available at the right time. vai trò
The system replans net requirements and coverage
in response to changes in the production schedule,
inventory status, or product composition do

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 Manufacturing Resource Planning (MRP2)
other manufacturing function

Manufacturing Resource Planning (MRP2) expands

on the concepts of MRP by incorporating capacity
planning, shop floor control, and other manufacturing-
related functions. khái niệm
MRP2 integrates production planning, scheduling,
and inventory management to optimize
manufacturing processes and resource utilization. do

This system helps organizations in effectively

managing their manufacturing resources and
improving operational efficiency vai trò

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 Enterprise Resource Planning (ERP)
core business process

Enterprise Resource Planning (ERP) is a comprehensive

software system that integrates core business processes such
as finance, human resources, and supply chain management.
ERP systems provide a unified platform for data sharing,
collaboration, and decision-making across different departments
and functions. cung cấp unified platform in different departments
By streamlining business operations and data management,
ERP systems help organizations improve efficiency, productivity,
and decision-making lợi ích

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 Just-in-Time (JIT)
Just-in-Time (JIT) is a production strategy that aims
to produce only what is needed, when it is needed,
and in the quantity needed to meet customer
demand.
JIT helps organizations reduce waste, minimize
inventory holding costs, and improve operational
efficiency by eliminating excess inventory and
streamlining production processes. lợi ích
By synchronizing production with demand, JIT
enables organizations to respond quickly to changing
customer needs and market conditions, leading to
improved quality and cost savings lợi ích

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 Just-in-Time (JIT)
Kanban Pull System:Example: In an electronics component manufacturing plant, each production stage only receives materials from
the previous stage when there is a request (Kanban card). When a stage completes a batch of products, they send the Kanban card
back to the previous stage to request more materials. This helps avoid excess inventory at each stage.

The key
prerequisit
es for JIT

Reducing Batch Size:Example: Instead of producing hundreds of identical products in one go, the factory produces only a small quantity
of products to meet immediate demand. This reduces waiting time, lowers inventory costs, and provides more flexibility in responding to
changing customer requirements.Total Quality Management (TQM):Example: Setting a "zero-defect" goal at every stage of production.
The factory implements strict quality control activities, trains workers, and uses statistical tools to detect and fix defects
early.Involvement of All Stakeholders:Example: Regular meetings between different departments within the company and between the
company and suppliers to share information, solve problems, and make joint decisions.Collaborative Supplier Relationships:Example:
Building long-term relationships with suppliers, sharing production plans, co-developing new products, and improving delivery
processes to ensure timely and accurate material supply.
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 Lean and Agile Supply

Lean and Agile are supply chain management

strategies that focus on enhancing efficiency,
flexibility, and responsiveness in operations. khái niệm
Lean principles aim to eliminate waste, optimize
processes, and continuously improve operations to
deliver value to customers. mục đích
Agile supply chain practices emphasize adaptability,
quick response to market changes, and collaboration
with suppliers and partners to meet customer
demands effectively mục đích

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 Lean and Agile Supply

‘Leagile’
supply

Decoupling Point: The transition point between Lean’s stable, forecast-driven supply and Agile’s flexible, quick-response approach.
Lean Supply: Focuses on waste reduction and efficiency for predictable demand.
Agile Supply: Quickly adapts to changing customer needs and market conditions.
Global Procurement Benefits:Cost optimization: Lean reduces inventory and production costs.Customer responsiveness: Agile adjusts
to special requests or market shifts.Risk reduction: Splitting the chain minimizes market risks.Competitiveness: Combines stability and
flexibility to enhance market performance.
Example: A car company mass-produces basic components (Lean) and customizes features per customer (Agile).
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 Top Right (Leagile - Long lead time, Unpredictable demand):
Top Left (Lean - Long lead time, Predictable demand):Example: Example: Purchasing electronic components for smartphones,
Buying raw materials for steel production, such as iron ore, with with long lead times but fast-changing market
long lead times and stable demand.Application: Use Lean demand.Application: Combine Lean for bulk ordering of basic
methods like Kanban and VMI to optimize ordering, minimize parts and Agile for flexible adjustments to new or changing
inventory, and ensure a stable supply. components.

Bottom Left (Lean - Short lead time, Predictable demand): Bottom Right (Agile - Short lead time, Unpredictable demand):
Example: Buying packaging materials for consumer products, Example: Buying luxury fashion components, with short lead
with short delivery times and stable demand.Application: Use times and rapidly changing demand.Application: Use Agile to
Lean to optimize ordering, reduce shipping costs, and ensure quickly respond to trends, make flexible orders, and minimize
continuous supply. inventory risks.
Demand and supply characteristics and lean and agile options
Lean and Agile Supply

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 Vendor-Managed Inventory
supplier manage inventory

Vendor-Managed Inventory (VMI) is a supply chain

management practice in which suppliers manage
inventory levels for their customers. khái niệm
In VMI, suppliers monitor customer inventory levels,
replenish stock automatically, and optimize inventory
levels to ensure product availability. do
VMI helps improve supply chain efficiency, reduce
stockouts, and enhance collaboration between
suppliers and customers, leading to cost savings and
improved service levels lợi ích

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 Covid-19: Just-in-Case Inventory?

The Covid-19 pandemic has highlighted the

importance of supply chain resilience and the need
for organizations to reevaluate their inventory
management strategies.
Just-in-Case Inventory refers to holding safety stock
or buffer inventory to mitigate disruptions and
uncertainties in the supply chain.
Post-pandemic, organizations are considering
adopting just-in-case inventory strategies to build
resilience, reduce supply chain risks, and ensure
continuity of operations in the face of future
disruptions
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 Time and Competitive Advantage
Time is a key variable in supply chain management
Minimizing time waste can reduce supply chain costs benefits
Responsiveness and time compression are crucial for
competitive advantage benefits
Companies that react promptly to customer needs
attract more orders
Importance of time to market and management
philosophies

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 On-time Delivery
Lead time stages from pre-order planning to payment
processing
Importance of analyzing and determining the need to
order
Different stages in production, warehouse, and transit
lead times
Supply lead time as the total of all lead times
excluding payment lead times

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 Lead-time Improvement
Reliable lead times are more important than the
length of lead time
Methods for lead-time reduction: agile supply chain,
pre-built inventory, or a combination
Sourcing with suppliers having short 'true' lead times
is crucial
Importance of supply chain visibility and controls for
lead-time improvement

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 Effect of Covid-19 Pandemic on Supply Chains

Procurement strategies post-Covid for building resilience in

supply chains
Increased flexibility, agility, and inventory levels in supply chains
Over 40% of European retailers planned onshoring to mitigate
disruptions
Focus on supplier vulnerability, risk exposure, and global
disruptions for supply chain management

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