Respond to the below classmate forum post taken from a Logistics a Management course and perspective of a fellow classmate. The objective is to acknowledge the correct portions and give positive constructive criticism regarding the answers of the fellow classmates response to these forum questions within the scenarios described below:
The classmate has to:
answer the following questions after reviewing the reading and lessons for Week 2.
1. How can firms cope with huge variability in customer demand?
2. What is the relationship between service and inventory levels?
3. What is the impact of lead time, and lead time variability, on inventory levels?
CLASSMATES FORUM POST TO CRITIQUE:
How can firms cope with huge variability in customer demand?
The uncertainty or forecasting is one of the most challenging jobs for any business. This really is the staple in establishing demand variability in my opinion. For supply chain managers, this challenge can lead to unpredictable demand variances in not only inventory surpluses, but it can also lead to shortages. Supply functions by demand and these risks can be costly especially at the rate of competition these days. Traditionally, historical data is used most cases, but again this falls into the category of forecasting which is unpredictable (Simchi et al., p. 39, 2008). For the most part, I believe many companies survive at this risk. However, another method often utilized is that of risk pooling. According to Simchi and Kaminsky (2008), the concept of risk pooling in multiple company locations increases the likelihood of offsetting low variances at one location to high at another, which can decrease can reduce the need for safety stock and in turn produce a cost savings to a company.
What is the relationship between service and inventory levels?
Inventory control measures should be defined by a company’s inventory policy, which will help set those perimeters as to when to order base stock. Also, an inventory policy will assist to determine if it’s a good idea to hold any inventory in the first place (Simchi et al., p. 38-39, 2008). It’s a good idea at this time to also define the service level requirements a company plans on maintaining for its customers. At any one time, a company’s service level may not met customer demand and that can be critical to overall future business. Uncertainty in any case effects things like lead time, transportation costs, and customer satisfaction (p.38). Each situation will address a variety of decisions to be made and establishing a realistic inventory policy would be a good starting point since the relationship between the service and inventory levels work hand in hand (Simchi et al., p. 39, 2008).
What is the impact of lead time, and lead time variability, on inventory levels?
Companies need to establish inventory reviews within their inventory policy so they can continue to meet customer demand requirements Simchi et al., 2008). This is also important because it will protect against shortages just in case they start dipping into their base-stock level (p.52). Ultimately, this review will help determine what’s moving slow or not fast enough and in turn paint a bigger more realistic view of lead times and lead time variability (p.63).
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