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The relationship between the Dc and the average daily demand will be driven by the required service level of the product item to market demand. A higher service level will call for capacity that can supply a higher daily rate than the average over a long range. This will likely affect the resource productivity and inventory levels. A greater ...
Because, contrary to the variations of the service level, the service level does not only reflect the stockout event but also the amount backordered, it is widely used in industrial practice. Also, by the definitions, comparing service levels we have α ≤ β {\displaystyle \alpha \leq \beta } whenever the probability of zero demand equals 0.
Lead time is the delay between the time the reorder point (inventory level which initiates an order [8]) is reached and renewed availability. Service level is the desired probability of meeting demand during the lead time without a stockout. If the service level is increased, the required safety stock increases, as well.
In a base-stock system inventory position is given by on-hand inventory-backorders+orders and since inventory never goes negative, inventory position=r+1. Once an order is placed the base stock level is r+1 and if X≤r+1 there won't be a backorder. The probability that an order does not result in back-order is therefore:
A sequential single-echelon approach forecasts demand and determines required inventory for each echelon separately. Multi-echelon inventory optimization determines the correct levels of inventory across the network based on demand variability at the various nodes and the performance (lead time, delays, service level) at the higher echelons. [17]
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If daily delivery with one day stock is applied, delivery frequency will be 4,000 and average inventory level of A class item will be 1.5 days' supply and total inventory level will be 1.025 weeks' supply, a reduction of inventory by 59%. Total delivery frequency is also reduced to half from 16,000 to 8,200. Result
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