3. Reactive Methods
❖
Reactive inventory system responds to channel member’s
inventory needs by the drawing the product through the
distribution channel.
❖
Reactive system waits for customer demand to pull the product
through the system.
❖
Order quantity is a function of safety stock levels and
predetermined maximum level
5. Reactive Methods Assumptions
❖
All customers, market areas, products contribute equally to
profits
❖
It assumes infinite availability at the source
❖
It assumes infinite inventory availability at the supply location
too
❖
Performance-cycle (lead time) is constant
❖
Customer demand patterns are relatively stable and consistent
- doesn’t apply for lumpy demands
❖
Each distribution center’s timing and quantity of replenishment
orders are determined independently of all other sites,
including the supply source
7. Fair Share Allocation
PLANT WAREHOUSE
Inventory 600 units
Safety Stock 100 units
DISTRIBUTION
CENTER 1
DISTRIBUTION
CENTER 2
DISTRIBUTION
CENTER 3
Inventory 50 units
Daily use 10 units
Inventory 100 units
Daily use 50 units
Inventory 75 units
Daily use 15 units
8. Fair Share Allocation
❖
Common Days’ supply DS = (Aj + ∑Ij) / ∑Dj , Where
❖
DS = Common days’ supply for distribution center inventories
❖
Aj = inventory units to be allocated from plant warehouse
❖ Ij
= inventory in units for distribution center j
❖
Dj = daily demand for distribution center j
❖
Amount to be allocated to each distribution center is given by,
❖
Aj = (DS - (Ij / Dj)) * Dj
9. Inputs to DRP
❖
Sales forecast by SKU at each ISL (Inventory Stocking
Location)
❖
Customer orders for current and future delivery - Outstanding
purchase orders or manufacturing orders
❖
Available inventory for sale by SKU at each ISL
❖
Logistics, manufacturing and purchasing lead times
❖
Modes of transport and deployment frequencies
❖
Safety stock policies by SKU at each ISL
❖
Order quantity by SKU at each ISL
10. DRP - Marketing Benefits
❖
Improved service levels - On time deliveries and customer
complaints
❖
Improved and effective promotional plans
❖
Improved ability to anticipate shortages of right items
❖
Improved inventory coordination with other functions of firm
❖
Customers finally benefit due to all of the above
11. DRP - Logistics Benefits
❖
Reduction of DC’s freight costs due to coordinated shipments
❖
Reduced inventory levels as what product when it is needed is
determined
❖
Decreased warehouse space requirements
❖
Fewer back orders leading to reduction of freight costs
❖
Improved inventory visibility