Hedging Against Risk - Operations Management

                              Hello Friends , I am Ashok Bavliya and today we will Continue our new Course on the topic of  the operation management with start next blog " Hedging Against Risk "

      Let's understand why inventory and how inventory is used to hedge against supply chain was in order to do that.Let's first of all understand what is the risk the risk that we call uncertainty is the risk of demand.Demand uncertainty or supply but the risk is exacerbated with time.

        If there is no lead time we can for every demand surge always produce more over the longer lead time.The more risk different faces if we have this understanding now we can design the tools first of all

we can improve the forecast.We can buy more information we can get information on point of sale and use that to target customers better and improve our overall understanding offerings.

     We can of course multi-source by multi-source and using multiple vendors for the same product even if one fails or has some delays we can always replenish from others.These are simple steps one can take but they want to discuss three more interesting steps reducing lead time inventory pooling and delay differentiation reducing lead time can be done.

The simplest way by on shoring bringing your plant bring your manufacturing onshore.

In this case this is an interview with the times with the CEO of Dependent.

    So the question was why did you decide to open your new factory in the United States.

The response time for orders coming from China is three weeks in all of our brewery clients want our

products faster.That's the first thing they say when we meet with them we'll break even on production but come out ahead when once we factor in lead time right now we're losing customers because of it.

    One can view it this way but it is very simple as we said before if there is no lead time there is no

need to carry any safety stock.There is no risk to hedge against any increase in demand.

    You can immediately order more over the longer the lead time the more inventory you need to carry more of that the longer the time the more units are currently in the sea or in different transnational

by bringing your manufacturing on shore you reduce the amount of inventory needed and you overall reduce the amount of time you spend from the moment that you place an order until they are being purchased.

     What if you cannot reduce your lead time a tool many firms use and more and more firms when it comes to e-commerce use is the idea of centralization inventory pooling.In this example this picture taken from Amazon one of their new warehouses Amazon centralized theirsupply chain initially to one warehouse.

     Now a bit more but still the idea of centralizing and pulling inventory rather than carrying them in

many different stores.You don't understand that.Think about the situation where you have a book that sells only one item a year.

     If you have 50 different stores in 50 different states you need to carry at least one version of that

book at least one copy in each store to be able to offer any type of service level with respect to the

product.Now imagine a situation where you have only one warehouse and you allow customers to place the orders on line.

     Know you know that you're going to have maybe 50 copies a year that you need to sell but now you don't need to carry that much inventory probably with only five units maybe 10 you can support the entire demand.And whenever there is an order place you can replenish it back to the Kleffel by pulling the inventory together and the math can be a bit more complicated.

      What you can do is reduce significantly the amount of inventory you need to carry in the system.

And as we said before reducing inventory allows you to reduce the time and improve the forecast.

This is one of the main drivers for e-commerce over what confirms that must have brick and mortar.

What can they do.

    The example taken from Nordstrom showed some of the innovation one can have along these lines.

In the case of a Nordstrom this is a quote from the New York Times.The change works this way say that the shopper was looking for a blue Mike Jacobs handbag from the car.

      She could see where it was available at nearby stores and reserve it and pick it up the same day.

What's significant is the Web warehouse was out of that bag.It did not matter.Inventory from North 215 wrigglers stores is also included.

     Maybe that was just one hand bank left in the entire company sitting for long way in the back of the

Roseville feel store.It would be displayed online in the store employees would ship it to the Web customer.

      And this is really one of the most interesting innovations when it comes to inventory management.

The fact that even though you don't carry this inventory in one place you doesn't matter doesn't mean

that you cannot manage it as if it's one place allowing you to provide superior customer service to

your web customer superior customer service to your store customers while having a reduced amount of

inventory and the high service level.

     The idea of centralization doesn't stop only at pulling demand from different graphical areas.

One can take it one more step is the way to offer higher variety and higher customization level to your

customers.In this case we look at Timbuktu.

    Timbuktu allows customers to customize their messenger bags and to choose what stripes they want what colors they want in a huge variety.How can you offer that variety in a cost effective way.One way of course is just to try to carry inventory from each type.

      That's clearly not cost effective your own to either overstock or understood on literally each and every variant d enervation Timbuktu had was to carry what we call a platform platform made that you carry great bags and you postpone delay the moment that you need to actually decide on what exact variant this product will be only when the customer places that order only then you're going to take this platform this gray bag and attach the thing that the customer wanted.

Again the idea that now you carry only pleasant bags only gray bags and you are not as exposed to the

risk of others talking or overstocking.

And the idea is as we said before reducing the amount of inventory while providing superior service

level at a significantly higher variety.

I hope you Like it  and I will see you in the next one , And Don't Forget to Login with Business Vala