LECTURE #7. Inventory Logistics

1. The essence and content of logistics stocks

Logistics processes, taking place either within an enterprise or between enterprises, cover the movement of material flows and are accompanied by the constant creation of inventories. The reason for creating reserves is the need to smooth out the different intensities of interacting flows.

The randomness factor influences logistics processes and is the reason for the formation of inventories; it makes accurate forecasting impossible, and therefore logistics decisions are made under conditions of uncertainty.

If it is impossible to achieve synchrony between incoming and outgoing flows, safety stocks are created, the creation of which is justified by the following reasons:

1) the need to insure yourself if your own needs or market demand turn out to be greater than planned;

2) the desire to compensate for possible uncertainty of supplies or their delay.

In order to be able to make purchases at lower prices, stocks are often created. In case of favorable market conditions or due to the seasonal nature of purchased assets, reserves are also created. Technological progress is considered a significant factor in the formation of reserves. Its impact on stocks is complex and varied. In the field of materials supply, technological progress has a particularly strong impact.

It promotes the miniaturization of products, the emergence of new materials, types of raw materials and technologies. All this entails a reduction in the physical volume of the final product, which leads to a decrease in the need for materials. This affects inventory levels, but such changes are not necessarily proportional to changes in the volume and composition of materials used.

When creating a stock, you need to take into account that an increase in the range of goods on the market leads to a decrease in the product life cycle and affects the behavior of partners, customers and competitors. Production efficiency directly depends on the amount of inventory; inventories act as working capital. The fewer there are, the more efficient the production.

The continuity of logistics processes at an enterprise is characterized by the number of maintained inventories, as well as their productivity. Purchasing processes have a significant impact on the materials inventory of the production process and on the inventory of goods of the trading enterprise. The sales process affects the inventory of finished goods and goods. At a manufacturing enterprise, the following inventories are created: materials, unfinished products, finished goods.

At a trading enterprise, inventories of goods are created. Industrial enterprises with a distribution network also create inventories of goods.

The dynamics of inventories is associated with the dynamics of turnover, which makes it possible to reduce the inventory intensity of business processes. The inventory structure should be varied and should allow its compliance with needs to be assessed. Assessing the economic suitability of inventories is also of great importance. Optimally meeting production needs for materials at minimal cost is the main goal of purchasing logistics.

2. Functions and classification of reserves

Throughout supply chains, inventories are present in one form or another.

Material reserves are products at different stages of production and promotion.

The subject of study in logistics is not material resources, but their movement in space and time.

You can consider inventory as a material flow at a specific time interval during the application of logistics operations to it.

Stock classification.

1. By place in the logistics channel of products (material resources, work in progress, finished products, containers and returned waste).

2. In relation to logistics operations.

Material resources located in logistics channels from suppliers to commodity producers are supplies in supply, which are intended to support the production process.

Stocks of raw materials, materials, components, containers are industrial stocks. Industrial inventories are divided into current, insurance, preparatory, seasonal, and illiquid. Inventory is taken into account in natural and cost units of measurement.

The size of industrial inventories is influenced by: the need of consumer enterprises for material resources, the pattern of receiving materials into production or the continuity of its consumption, warehouse features, transportation, seasonality of production and consumption.

Inventories of finished products, transport stocks stored in finished product warehouses of the manufacturing company, specialized to meet demand during sales, are sales inventories. They are divided into current, insurance, seasonal, and promotional stocks.

Sales inventories are analyzed, planned and recorded in cost and relative terms and can be considered both at the beginning and at the end of the period.

The sum of commodity, production, transport stocks, unfinished production is total stocks.

Stocks of material resources, unfinished production or finished goods, in the process of transportation from one element to another, are transport stocks. The scale of transport stocks is determined by the distance over which goods are moved, the parameter of the chain of goods movement in the circulation process, industry and regional specialization, the time the goods spend in transit and standards for cargo delivery times.

A specific warehouse stock formed without a logistics storage operation is cargo processing.

3. By functional purpose.

These are current inventories, which are the main part of production and commodity inventories needed to ensure continuity of production or sales between two deliveries. They are usually calculated from the delivery interval.

The safety stock is intended to reduce monetary risks combined with unforeseen fluctuations in demand for finished products, failure to fulfill contractual promises for the supply of material raw materials, disruptions in production and technological cycles and other unforeseen circumstances, if the need temporarily cannot be satisfied in the usual way.

In order to protect against possible price increases, speculative reserves are created.

Preparatory stock. This is part of the production inventory, specialized for the preparation of material raw materials ready for production or personal consumption, which is formed during the acceptance, registration of goods, loading and unloading operations, and additional preparation for consumption.

The size of preparatory stocks depends on the length of time required to carry out logistics operations to prepare material resources for consumption, as well as on the scale of their average daily consumption.

Seasonal stocks. These are reserves of material resources and finished products, formed and maintained under certain seasonal fluctuations in demand or the nature of production and transportation.

They ensure the good functioning of enterprises during the seasonal break in production, consumption and transportation.

The size of the seasonal stock is determined as the product of the average daily use of a certain type of material resource or finished product by the time of interruption in receipt or consumption.

Promotion stocks of finished products are accumulated and maintained in distribution channels for a quick response to the marketing policy pursued by the enterprise for the movement of goods to the market.

These inventories must satisfy a possible sharp increase in demand for the firm's finished products.

Unliquid stocks. These are goods that have not been sold for a long period of time. They appear due to deterioration in the quality of the product during storage, its obsolescence, or expiration of the shelf life.

In relation to links in the logistics system or logistics intermediaries, inventories are classified as held by suppliers, consumers or resellers.

In the economic activities of manufacturing and commercial enterprises, inventories can play both a positive and negative role. The positive role of inventories is to ensure the continuity of the production and sales process - being a special buffer, they smooth out unforeseen fluctuations in demand, disruptions in supplies and the production process, and increase the reliability of logistics management.

To weaken the non-productive dependence between the supplier, manufacturer and consumer, reserves are used, which make it possible to provide production with raw materials supplied in efficient batch sizes, as well as to process raw materials into finished products in batches of a specific size.

Stocks of raw materials weaken the dependence of the manufacturer on the supplier of raw materials, stocks of finished products reduce the dependence of the manufacturer on the consumer, stocks of semi-finished products that are still in the production process reduce the dependence of individual workshops on each other. In production, where materials are processed in autonomous batches, there is a need for an inter-shop stock of semi-finished products.

Stock types.

1. A buffer stock is formed between the supplier and the consumer. It is used to balance the costs associated with the movement of materials, to reduce consumer dependence on the supplier, to be able to purchase products and produce them in batches of optimal size.

2. Inventories of finished products ensure the production of products in batches of optimal size, satisfy anticipated demand, and compensate for deviations of actual demand from the forecast.

3. Inventories to meet expected demand are held to meet forecast demand. Determining such reserves does not cause any particular difficulties, since the magnitude and timing of demand are known.

4. Safety stock helps meet unexpected increases in demand. The presence of these reserves compensates for the discrepancy between forecasted demand and actual demand.

3. Optimization and regulation of inventories

Inventories are formed from various goods. The concept of "product" in logistics includes the actual product. It can be expressed in a specific characteristic form of the product.

A group of goods related to each other by at least one characteristic is a product assortment, where the common characteristic is: a common distribution channel, a similar price range, etc.

The totality of all assortment groups of goods and product units offered for sale is a product nomenclature.

A number of positions determine decisions made within the framework of product policy: product range, depth and width of assortment groups, range of sizes of each product, product quality, release of new products, product standardization.

Logistics considers the company's inventory management policy, and commodity policy forms the company's inventory of goods.

“Just in time” is a method that is applied in logistics to all components of business, including production, shipping and purchasing of goods. The idea behind this method is that all unwanted inventory should be kept to a minimum. A non-logistics policy assumes that products are kept in stock "just in case" so that unexpected demand can be met.

This policy is expensive as it requires maintaining a large warehouse area to store inventory.

In the course of the company's activities, a dilemma constantly arises: to build additional warehouse space on the existing space or to use funds to expand production capacity and, consequently, to increase product output.

Businesses more often choose the second approach, the just-in-time method covers all activities during production and distribution.

The purpose of this method is to produce and ship products within a certain period of time for their further use.

Another optimization method is the rapid response method. This method represents close interaction between a trading enterprise and its suppliers in order to improve the promotion of goods in distribution networks.

Its essence lies in planning and regulating deliveries to retail and wholesale trade organizations and distribution centers.

In retail trade, monitoring and control over a certain type of sales is carried out, information is generated and transmitted about the scale of sales according to the list and assortment through wholesalers to product manufacturers.

The rapid response method involves optimizing the inventories of retail enterprises.

Using this method reduces inventories of finished products to a certain amount, but not below a level that helps quickly satisfy the demand of the majority of customers. The response time of the logistics system to changes in demand is reduced, inventories are concentrated and replenished at specific points of sale, there is flexible interaction between partners in the integrated logistics network, and inventory turnover is significantly increased.

The minimum stock is the level of stock that ensures the continuity of meeting demand for the entire period of fulfillment of your own request to replenish this stock.

The maximum stock is the stock level up to which replenishment requests can be issued and the stock level at the time the delivery is received.

4. Systems and methods of inventory management

Inventories as an economic category play an important role in the production and circulation of products.

There are a large number of management methods, each of which has certain logistics costs.

In this case, optimization criteria can be considered: minimum logistics costs associated with inventory management, minimum order lead time, maximum delivery reliability. Let's look at several inventory management systems.

Logistic concept "Responding to demand" and its variants.

The concept of "Demand Response" is used to minimize the reaction time to changes in demand by quickly replenishing stocks in those market segments where demand is predicted to increase.

The advantages of using this concept are as follows:

1) it is possible to obtain information about the needs of buyers;

2) order transactions and finished product delivery schedules contribute to better inventory management in distribution;

3) knowledge of the scale of sales and inventories of the retail network guides manufacturers in more accurate delivery planning;

4) suppliers respond more quickly to changes in consumer demand;

5) long-term partnerships between manufacturers and wholesale and retail enterprises are being introduced, which reduces risks and increases the efficiency of logistics operations.

The following variants of the concept are known: the concept of determining the order location, the rapid response method, the concept of continuous replenishment, the concept of automatic replenishment of stocks. Inventory management systems, as a rule, are drawn up taking into account approximately constant conditions, but there may be changes in the need for material stock, changes in delivery conditions, or violations of the contract by the supplier.

To solve such problems, combined systems with the possibility of self-regulation are created. In each system, a certain target function is established, which serves as a criterion for efficiency within the economic and mathematical model of inventory management.

It contains the following elements:

1) costs associated with organizing the order and its implementation and payment for services for delivering the order to the warehouse. They depend on the annual volume of work, the form of operation of the enterprise and the size of the order. Changing the organizational structure and using automated control systems serve to reduce costs;

2) storage costs. They consist of fixed costs, variable costs, warehousing costs, inventory conversion costs, spoilage losses, etc.

When making calculations, the specific value of storage costs is used, which is equal to the cost per unit of stored goods per unit of time. Costs for a calendar period are assumed to be equal to the amount of inventory and the length of the period between orders;

3) losses due to shortages. When the supply and distribution organization is financially responsible for customer dissatisfaction, these losses occur.

5. Justification of the required amount of stocks of a trading enterprise

When calculating the maximum inventory, they focus on meeting the forecasted demand in the current period, the duration of which is equal to the sum of the optimal order cycle time and the average order fulfillment period.

When calculating the optimal order cycle, the optimal volume of the supplied batch and the forecast of annual demand are used.

In the optimal order cycle model, the volumes of certain delivered lots are relative. They depend on the difference between the maximum stock norm and the actual stock in the warehouse at the time of order.

Economic lot size is the size of a lot of goods that allows you to reduce the forecasted need for inventory under certain conditions and prices. The method for determining economic lot size is to compare the advantages and disadvantages of large and small stocks. The following assumptions apply when determining lot size:

1) the number constituting the annual requirement is known;

2) the value of demand is constant;

3) orders are immediately executed;

4) the cost of placing orders does not depend on the size of the batch;

5) in the period under review, prices for materials do not change.

In the logistics system, the choice of optimal tactics for ordering material resources plays an important role.

The optimal inventory quantity system involves choosing effective ordering tactics so that the warehouse does not become a place for inventory accumulation, but also does not incur costs due to the lack of goods.

A measure of the degree of inventory optimization is the minimum total costs in the presence of a distribution of order possibilities for each specific product and costs per unit of each type of product.

6. Inventory management

Solving problems related to accounting, systematization, analysis and optimization of inventory levels is inventory management. It is based on the study of patterns of occurrence and consumption of reserves. The stock is made up of usable but not consumed resources. The need to solve the stock problem appears under the condition that the amount of resources can be regulated. The goal of solving the problem is to reduce actual or predicted costs.

Achieving optimal proportionality between the scale of production and inventory is one of the main tasks in inventory management.

Inventory management is a task common to enterprises and firms in any sector of the economic system. Inventory needs to be created in industry, retail, etc. When managing inventory in any organization, regardless of the complexity of the supply system, you have to answer the question of how much to order and when to order. To solve these issues, there are specific inventory management systems:

1) with certain order size;

2) with a certain break between orders (with a constant level of stock).

Other systems are variations of these two systems.

Let us consider in detail a system with a fixed (certain) stock size, which is classical and simple in structure. In this system, the order size is a constant value, and re-ordering is done when the available inventory is reduced to a specific critical level.

This system is organized on the choice of batch size, which reduces the overall costs of inventory management, which are formed from the costs of order fulfillment and the costs of holding inventory.

Order fulfillment costs are expenses that arise during the implementation of an order and depend on the size of the order. In industry, these costs are attributed to preparatory and final operations.

Inventory holding costs combine the costs incurred by actually storing goods in a warehouse and the likely interest on money invested in inventory.

Using specific data on sales and delivery time, you can visualize the process and understand what happens when using order rules over a long period of time.

An order quantity inventory management system is used when inventory management costs are high and when the supplier enforces minimum lot size restrictions.

In an inventory management system, costs are not explicitly considered and there is no specific order quantity. At regular intervals, the inventory quantity is checked, and if during the previous check a certain quantity of goods was consumed, an order is submitted.

The systems considered are not the only possible ones. The choice of system depends on the following circumstances.

1. If inventory management costs are insignificant, a system with a certain level of inventory should be used.

2. A system with a constant order level is more preferable if inventory management costs are insignificant.

3. If a supplier enforces minimum lot size restrictions, it is advisable to use a fixed order size system because it is easier to balance a specific lot size once than to continually fine-tune its variable order.

4. A system with a constant level of inventory is more preferable if restrictions are related to the carrying capacity of vehicles.

5. If the delivery of goods occurs on time, a system with a constant level of inventory is more preferable.

6. If you need to quickly respond to changes in sales, a system with a constant level and a system with two levels are often selected.

The choice of these systems depends on financial indicators and characterizes the time of the production process, including the production cycle time. The last two characteristics are strongly dependent on the maximum duration of one of the operations, on the average duration of operations and on the inconsistency of the progress of operations.

The spatial flow of the production process is characterized by: the production structure itself, the structure of available resources, the sequence and composition of labor costs necessary to produce manufactured products when carrying out the work program of the enterprise.

A change in the organization of the movement of objects of labor over time constantly leads to the same results: the time of the production cycle changes, the total downtime of workplaces changes, and the total time spent between production operations of objects of labor changes.

In the theory of production organization, two groups of patterns can currently be distinguished: the pattern of organization of production systems and the pattern of organization of production processes.

The description of the laws of organization of highly efficient production processes is considered a great achievement in modern theory. We are talking about the law of the orderly movement of objects of labor in production, the law of seasonal synchronization of the duration of technological operations, the law of resource reserves in production, the law of the rhythm of the production cycle of order execution.

The use of the above-mentioned laws of organization of production processes allows you to plan and maintain the rhythmic work of the production departments of the enterprise.

Author: Mishina L.A.

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