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Article
Publication date: 1 October 2002

Massimo Bertolini and Antonio Rizzi

In this paper we introduce a simulative model, designed and developed to optimally manage an integrated finished goods inventory system, and suitable for adoption in a…

2995

Abstract

In this paper we introduce a simulative model, designed and developed to optimally manage an integrated finished goods inventory system, and suitable for adoption in a wide range of make to stock manufacturing firms. The goal of the model is to manage optimally finished goods inventory levels, in order to minimize costs deriving from holding inventory and from adjustment to the master production schedule (MPS) to prevent stock‐outs. A trade off is sought between these costs components. The input variables of the model are: safety stock levels, assessed through coefficients k1, k2 and k3, and the stochastic distribution functions of products demand. The model performances are assessed considering the annual total cost for the inventory management. The model is then tested by a numerical application. The case considered refers to a major firm operating in the zootechnical feeds production industry.

Details

Logistics Information Management, vol. 15 no. 4
Type: Research Article
ISSN: 0957-6053

Keywords

Article
Publication date: 6 May 2014

Anna Azzi, Daria Battini, Maurizio Faccio, Alessandro Persona and Fabio Sgarbossa

Logisticians in the worldwide industry are frequently faced with the problem of measuring the total cost of holding inventories with simple and easy-to-use methodologies…

5047

Abstract

Purpose

Logisticians in the worldwide industry are frequently faced with the problem of measuring the total cost of holding inventories with simple and easy-to-use methodologies. The purpose of this paper is to look at the problem, and in particular illustrate the inventory holding cost rate computation, when different kind of warehousing systems are applied.

Design/methodology/approach

A multiple case study analysis is here developed and supported by a methodological framework directly derived from the working group discussions and brainstorming activities. Two different field of application are considered: one related to five companies with manual warehousing systems operating with traditional fork lift trucks; the other is among five companies operating with automated storage/retrieval systems (AS/RS) to store inventories.

Findings

The multi-case study helps to understand how the holding cost parameter is currently computed by industrial managers and how much the difference between manual and automated/automatic warehousing systems impacts on the inventory cost structure definition. The insights from the ten case studies provide evidence that the kind of storage system adopted inside the factory can impact on the holding cost rate computation and permit to derive important considerations.

Practical implications

The final aim of this work is to help industrial engineers and logisticians in correctly understanding the inventory costs involved in their systems and their cost structure. In addition, the multi-case analysis leads to considerations, to be applied in different industrial contexts. As other industrial applications are identified, they may be analyzed by using the presented methodology, and with aid from the data from this paper.

Originality/value

The relevance of this work is to help industrial engineers and logisticians in understanding correctly the inventory costs involved in their logistics systems and their cost structure. In addition, the multi-case analysis lead to interesting final considerations, easily to be applied in different industrial contexts. As other industrial applications are identified, they may be analyzed by using the methodology and extrapolating the data from this paper.

Details

The International Journal of Logistics Management, vol. 25 no. 1
Type: Research Article
ISSN: 0957-4093

Keywords

Article
Publication date: 1 January 1977

Bernard J. La Londe and Douglas M. Lambert

Inventory carrying costs represent one of the highest costs of distribution. Although they are a necessary input to the design of logistical systems, such costs are…

Abstract

Inventory carrying costs represent one of the highest costs of distribution. Although they are a necessary input to the design of logistical systems, such costs are ignored by many companies and when they are used usually represent estimates or industry benchmarks. The authors present a methodology designed to provide managers with a practical framework for determining the costs of carrying inventory.

Details

International Journal of Physical Distribution, vol. 7 no. 4
Type: Research Article
ISSN: 0020-7527

Article
Publication date: 1 April 1986

Frank P. Buffa

Consolidation, the grouping of several small shipments into one at a designated location, can reduce total logistics cost. Total logistics cost includes consolidation…

Abstract

Consolidation, the grouping of several small shipments into one at a designated location, can reduce total logistics cost. Total logistics cost includes consolidation, transportation and inventory costs. Identifying where cost‐saving opportunities exist is often confused by the interrelated nature of these various costs.

Details

International Journal of Physical Distribution & Materials Management, vol. 16 no. 4
Type: Research Article
ISSN: 0269-8218

Article
Publication date: 1 March 1979

Douglas M. Lambert and John T. Mentzer

Inventory carrying costs, the costs associated with the quantity and value of inventory stored, represent a large portion of the expense attached to distribution

Abstract

Inventory carrying costs, the costs associated with the quantity and value of inventory stored, represent a large portion of the expense attached to distribution activities. These costs also are influenced by the configuration of the physical distribution system utilised. Therefore, accurate assessment of inventory carrying costs is essential to not only controlling the cost area, but also for the analysis of the cost effectiveness of different physical distribution systems. Traditionally, managers who do consider the cost of holding inventory use estimates, industry benchmarks that range from 12 to 35 per cent of the value of the inventory, or textbook figures of 25 per cent. Many sources have quoted the 25 per cent figure and have not changed it in the last 30 years, thus ignoring the impact of inflation on the cost of capital. Also, it is believed that many firms do not even consider inventory carrying costs.

Details

International Journal of Physical Distribution & Materials Management, vol. 9 no. 6
Type: Research Article
ISSN: 0269-8218

Article
Publication date: 1 May 1975

Bernard J. La Londe and Douglas M. Lambert

Inventory carrying costs comprise a number of different cost components and generally represent one of the highest costs in the physical distribution system. This

Abstract

Inventory carrying costs comprise a number of different cost components and generally represent one of the highest costs in the physical distribution system. This, combined with the fact that inventory levels are influenced by the configuration of the logistics system, demonstrates the need for an accurate assessment of inventory carrying costs if the appropriate cost tradeoffs are to be made within the firm. Currently, most of the companies that consider the costs of holding inventory use estimates or traditional industry benchmarks. In fact, many corporations do not consider inventory carrying costs in decision making although such costs are substantial and real. Although a number of authors have addressed the types of costs that should be considered and have estimated that such costs range from 12% to 35%, there is not a generally accepted methodology for determining inventory carrying costs or for that matter even a framework for developing such costs. The purpose of this article is to present a methodology, based on existing literature in the fields of accounting, distribution and production, that can be used by managers to determine the cost of carrying inventory for their companies. In addition to providing a framework that can be applied in the “real world”, some specific uses for the inventory carrying cost figure are explored.

Details

International Journal of Physical Distribution, vol. 6 no. 1
Type: Research Article
ISSN: 0020-7527

Article
Publication date: 1 February 1991

John Gattorna, Abby Day and John Hargreaves

Key components of the logistics mix are described in an effort tocreate an understanding of the total logistics concept. Chapters includean introduction to logistics; the…

4916

Abstract

Key components of the logistics mix are described in an effort to create an understanding of the total logistics concept. Chapters include an introduction to logistics; the strategic role of logistics, customer service levels, channel relationships, facilities location, transport, inventory management, materials handling, interface with production, purchasing and materials management, estimating demand, order processing, systems performance, leadership and team building, business resource management.

Details

Logistics Information Management, vol. 4 no. 2
Type: Research Article
ISSN: 0957-6053

Keywords

Article
Publication date: 13 October 2020

Peter Benjamin Ellison and Robert A. Cook

Humanitarian crises increase vulnerability of children to pneumonia, so aid agencies store pharmaceuticals in advance of this demand. Decisions on how much to store are…

Abstract

Purpose

Humanitarian crises increase vulnerability of children to pneumonia, so aid agencies store pharmaceuticals in advance of this demand. Decisions on how much to store are plagued by many diverse challenges as is common in humanitarian contexts, so this study considers storing more medications to improve the relatively poor (∼80) demand coverage at a representative aid agency.

Design/methodology/approach

The paper combines inventory theory with health economics to calculate the impact inventory increases would have on the final cost of pneumonia treatment. It can then assess to what extent inventory can be increased while pneumonia treatment remains cost effective.

Findings

The study finds that more drug investment has only a small effect on the final treatment cost. Substantial drug inventory increases remain well within established guidelines for highly cost-effective treatments, so the agency should consider large increases as an efficient use of funding.

Research limitations/implications

The study focuses on pneumonia treatment only to allow sufficient depth of analysis. Further research could look at many other treatments using the same approach, although some problem scenarios will include complicating parameters like drug perishability.

Practical implications

The level of pharmaceutical inventory at humanitarian warehouses is a high-value decision for the aid sector. The method shows the potential for health economics to provide practical decision support for a wide range of humanitarian and ministry of health warehouse operations. While large increases in inventory investment are within guidelines, there is an asymptotically increasing cost as demand coverage approaches 100%. As a result, decision makers may want to set a target demand coverage (e.g. 99%) and allocate remaining aid funding to other projects.

Originality/value

Many humanitarian supply chain decisions lack analytical support due to issues with complexity, scale or a lack of reliable input data, and this study is the first to provide analytical insights which can greatly improve the current approach to inventory control policies for pneumonia medications and beyond.

Details

Journal of Humanitarian Logistics and Supply Chain Management, vol. 10 no. 4
Type: Research Article
ISSN: 2042-6747

Keywords

Article
Publication date: 1 February 2008

Marek Pawlak and Elżbieta Małyszek

The paper's purpose is to provide a method of reducing inventory costs in multi‐product and multi‐nodes supply chains (SC).

1833

Abstract

Purpose

The paper's purpose is to provide a method of reducing inventory costs in multi‐product and multi‐nodes supply chains (SC).

Design/methodology/approach

The proposed approach is based on applying the classical inventory control models and simulation. This is a two‐stage approach in which inventory cost reduction in the SC occurs as a result of the appropriate selection of inventory control policies by its members.

Findings

Cost reduction in the whole SC may occur as a result of an appropriate choice of inventory control policies in every node. SC members can learn which inventory control policies should be applied. Results of the learning process are closely connected with a kind of collaboration between chain nodes. The best results of the whole system can happen with a simultaneous deterioration of operation of its component elements. Therefore, losses which occur in some chain members as a result of collaboration should be compensated.

Research limitations/implications

This approach does not offer an optimal solution. The authors do not know how far they are from an optimal solution. The approach should be tested for more complicated SC. The authors have not studied the strategy in which SC cells negotiate the level of their inventories.

Practical implications

SC cells should apply a local cooperation strategy. When the cost of the whole SC decreases, the cost in particular nodes may significantly increase. The start of collaboration in the SC can cause a deterioration of results in some companies; therefore this loss should be compensated.

Originality/value

The paper presents the development of a framework in which an application of different policies of inventory control and application of different collaboration strategies in the SC are studied. The framework enables the use of classical inventory control models in a coordinated manner, and SC members decide which policies should be applied only on the basis of earlier collected experiences.

Details

Industrial Management & Data Systems, vol. 108 no. 1
Type: Research Article
ISSN: 0263-5577

Keywords

Article
Publication date: 1 February 1976

Ronald H. Ballou

Computerising inventory control procedures is usually an attempt to gain better control over stock availability. The effectiveness of the procedures depends on the time…

Abstract

Computerising inventory control procedures is usually an attempt to gain better control over stock availability. The effectiveness of the procedures depends on the time delays imparted by such events as order processing and delivery. Through these time delays, much of a finished goods physical distribution system is linked together through the inventory control procedures. Changing the length of any one time element through changes in inventory stocking rules, order processing methods or selected transportation services impacts on the economics of the entire physical distribution system. Little is understood about the effects of time change in such complex systems. In this article, the actual computer inventory control procedures of a chemical company were computer simulated. Physical distribution system design decisions and their associated time delay effects were explored by interrogating the model. Surprising effects were discovered, some of them being counter‐intuitive to what simple theory would predict. Management guidelines were provided as to the system‐wide economic consequences of change in individual elements of a physical distribution system.

Details

International Journal of Physical Distribution, vol. 6 no. 4
Type: Research Article
ISSN: 0020-7527

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