For Hanoi University of Science and Technology

Fundamentals Of
Inventory Management
By Huy Le May

2024

01
About Me

2017-2021 2020-2021 2021-2023 2023-2024

International University
DKSH Vietnam CEL Consulting Vrije Universiteit Amsterdam
VNU-HCM
Bachelor of Engineering in Logistics Inventory Planner for FMCG sector Supply Chain Analyst Master of Science in Transport and Supply
and Supply Chain Managment Specialized expertise: Specialized expertise: Chain Managment
Food & Beverages, Personal Care. Supply Chain Network Design,
Supply Chain Resilience,
Inventory Management,
Transportation 0ptimization. 02
Discussion Agenda
What is Inventory? 4

Why do we have Inventory? 6

Why do we Manage Inventory ? 8

How do we Manage Inventory? 12

Supply Chain Analytics Case Studies 29

03
What is Inventory ?

04
What is Inventory ?

Those stocks or items used to support (*)

Production (raw materials and work-in-process items).

Supporting activities (maintenance, repair, and operating supplies).

Customer service (finished goods and spare part).

05
(*) Blackstone, J. H. (2013). APICS Dictionary
Why do we have
Inventory ?

06
Why do we have Inventory ?
Demand Variability
Uncertainty
Supply Variability

Speculation/Price Protection

Economic Reasons Economies of Scale

Quantity Discounts

Processing time Covering

Others
Production processes Uncoupling

07
Why do we
Manage Inventory ?

08
Why do we Manage Inventory ?
SERVICE
Target Service Level
Lead time
Reliability
Order Flexibility (MOQ)
...

CASH COST
E.g.. Inventory Logistics
in general “Working Capital" Manufacturing
Purchasing
...

09
(*) Desmet, B. (2021). Supply Chain Strategy and Financial Metrics.
Why do we Manage Inventory ?
Profitability Impact

Do we have enough inventory to meet all demand?

Do we manage to control inventory cost?

10
Why do we Manage Inventory ?
Lidiquity Impact

CASH ACCOUNT RECEIVABLES

"How long does it take

for a company to
CASH-TO-CASH convert its initial cash
CYCLE investment in inventory
into cash received from
sales?"
ACCOUNT PAYABLES INVENTORY

11
https://www.investopedia.com/terms/c/cashconversioncycle.asp
How do we
Manage Inventory ?

12
How do we Manage Inventory ?
Plan
Demand and Supply Review Improve
Demand and Supply Planning Towards a Better Performance
Risk Assessment and
Mitigation Plan Discussion

Implement Monitor
Replenishment Execution Performance Tracking and Controlling

13
How do we Manage Inventory ?
Plan
Demand and Supply Review
Demand and Supply Planning
Risk Assessment and
Mitigation Plan Discussion

14
Plan
Demand and Supply Review

15
Plan
Demand And Supply Planning - Understand your Demand
General Understanding
What is the average sales volume per period of this product?
Product hierarchy (brand, category, subcategory, SKU,...)
Other master data about the product (purchase unit, sales unit, shelf-life, storage condition,..)
Time-series view (trend, seasonality, cycle)
Does this product/product category have increasing/decreasing “organic" demand trends in current periods?
Does this product/product category have seasonality characteristics in demand?
What is the low/high season of this product/product category demand?
Where is the product standing in its product life cycle?
Geographical view
What is the sales contribution by regions of this product/product category ?
Customer view
What is the sales contribution by channels?
Is there any special requirement for the product to be sold to a specific channel (shelf-life,..)
Other analytics:
Are there substitutions or complementary effects for products in the portfolio? 16
...
Plan
Demand And Supply Planning - Understand your Demand

By Product?
By Customer?
VOLUME
Both?

17
VARIATION
Plan
Demand And Supply Planning - Demand Forecast Validation

Period x

Demand Forecast of Period x

Baseline Demand of Period x

Gap (Forecast vs Baseline)

Assumptions

Reference Assumptions and Theirs Performance (if any)

18
Plan
Demand And Supply Planning - Important Parameters for Inventory Planning

19

https://www.wccltd.co.uk/driving-performance/news-listings/how-much-inventory-should-we-have/
Plan
Demand And Supply Planning - Important Parameters for Inventory Planning

Profit-driven Target Service Level?

Lee, H. L. (2002). Aligning Supply Chain Strategies with Product Uncertainties. California Management Review, 44(3), 105–119.
https://doi.org/10.2307/41166135

Gattorna, J., & Ellis, D. (2020). Transforming Supply Chains: Realign your business to better serve customers in a disruptive world. 20
In CSCMP’s Supply Chain Quarterly (pp. 51–53) [Book]. https://www.gattornaalignment.com/wp-
content/uploads/CSCMP%E2%80%99s-Supply-Chain-Quarterly-Supply-chain-design-with-the-marketplace-in-Feb-2020.pdf
Plan
Demand And Supply Planning - Classical Inventory Models

FIXED ORDER SIZE / VARIABLE REVIEW PERIOD VARIABLE ORDER SIZE / FIXED REVIEW PERIOD

21
Plan
Demand And Supply Planning - Risk Assessment and Mitigation Plan Discussion

Demand Risk

Supply Risk

Assumption

Risk Volume/Value

Risk Level

Mitigation Plan 22
How do we Manage Inventory ?

Implement
Replenishment Execution

23
Implement
Inform relevant parties such as suppliers, and facilities, … about the material requirement (Purchase Order, Production

Order,…).

Prepare delivery plan (if any, depending on order lead time).

Keep connected with suppliers/facilities/forwarding agents/… to update the newest supply information.

Make information visible to relevant parties.

Keep DC Operation informed about Shipment Arrival Time.

Keep Sales team informed about Available-For-Sales Time.

...

Prepare Distribution Requirement Planning (DRP)/ BTA (Branch Transfer Advise)/Internal Transfer Plan (if any).

24
How do we Manage Inventory ?

Monitor
Performance Tracking and Controlling

25
Monitor
Tracking the actual performance, comparing with the demand and supply plan:
Purchasing/Production:
Actual Received Quantity versus Ordered Quantity.
Actual Delivery Time versus Requested Delivery Time.
Sales
Actual Sales versus Sales Forecast.
Customer service level:
Actual Delivery Quantity versus Ordered Quantity.
Actual Delivery Time versus Requested Delivery Time.
Assumptions
Demand and Supply Reality versus Demand and Supply Assumptions.

→ Highlight risks for relevant parties for timely and correct action. If the risk can not prevented, performance should be
recorded for further investigation and improvement
26
How do we Manage Inventory ?

Improve
Towards a Better Performance

27
Improve

28
Supply Chain Analytics
Case Studies

29
Supply Chain Network Simulation
A Case Study of Dairy Manufacturer in Australia

30
Supply Chain Network Optimisation
A Case Study of Rebars Steel Company in Germany
Thank you
for your
time!