Inventory Management

Inventory Management
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Inventory Management
One of the methods that can be implemented to maximize profits is by focusing on the time it takes for the orders to be delivered after production process starts, that is called a lead time (De Treville 2014). An accurate lead time calculation ensures requests are made at the right time, therefore, keeping the inventory costs low. However, the lead time may either be more or less than the time estimated; this is referred as a lead time variability. When orders are made too early, it might result in excess inventory which can lead to increased cooling, storage, and insurance costs. Also, when deliveries are late, it might result in shortages. The management team and the suppliers should work together to determine when various commodities should be expected.
Target service level reduces the probability that shortages will occur; there are various factors the management team should consider to ensure this. The first item is the current target service level as it provides essential information on areas that require attention. Another aspect to consider is the replenishment lead time. The longer it takes to order an item, the longer it takes to recover from a shortage. Supplies should always be requested on time or even before depending on the demand. The last item to consider is the cost constraints; companies should utilize the resources available to ensure the smooth running of the business.
The projected amount of inventory before receiving a specific order is z X STD X √L; it changes to Q + z X STD X √L immediately after receiving the supply; this is because the first equation is before any supplies arrive, at this point, there is no existing supply.

However, the orders that follow are added to the previous remaining amount, Q.
References
De Treville, S., Bicer, I., Chavez-Demoulin, V., Hagspiel, V., Schürhoff, N., Tasserit, C., & Wager, S. (2014). Valuing lead time. Journal of Operations Management, 32(6), 337-346.