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PRN 53,54, 55, 56

Chapter 16

Managing Facilitating Goods

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Learning objective

y ServicesVs Manufacturing Inventory

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Service Versus Manufacturing

Service Business Manufacturing Business

simultaneous production andconsumption (co-

creation between producer andconsumer)

consumption and production atdifferentstages

manycritical aspects areintangible manycritical aspects aretangible

conceptofinventorymay not bematerial, butcan be

virtual such asrequests and, in healthcare, patients

waiting forservicecan beconsidered a typeof

inventory

usuallyhasinventory and buffers

considerablevariabilityin servicedelivery somevariation

open universein varietyofservicecases closedsetin varietyin productmanufacturing

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Differentiating Characteristics for

stores like

y Setup / Ordering Cost

y Numberof Products

y LimitedShelfSpacey LostsalesVs backorders

y Productsubstitution

y DemandVariance

y Information Accuracy

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Setup / Ordering Cost

y E.g. Steel pipemanufacturing company will havehighersetup/ ordering cost ascomparedto grocerystore.

Manufacturing Services

High Low

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Number Of Products (SKUs)

y E.g.- SKUs fortypical manufacturing companycan be a few

thousand productswhere as forserviceindustrysuchsuper

marketor bookstores itcan vary from 20,000 to 4,00,000

SKUs.y Managerial timespenton ordering decision of anyoneSKU

by a service firmmust beshort.

Manufacturing Services

Low High

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Limited ShelfSpace

Manufacturing Services

Low High

y Shelfspaceis a keyconsideration forretail stores.

y E

ven wallmart supercenters aretoosmall tocarry alldifferentitemsthatmightsell and arecertainlytoosmall to

carry all items productmfg would likethemtocarry.

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Lost Sales Vs Back Order

y Manufacturersworkon backorder andthen fill theorder

weeks later

y Where as a similarsituation in servicesmostly leadsto a lost

sales.

y To avoid lostsalesservicescan usereservations and

appointments

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Product Substitution

y In manyserviceinventorysituation retailerscarryidenticalproducts fromdifferentmanufacturers.

y Soserviceinventorymodel needstoconsidereffectsofcustomersubstitution behavior.

y Hencestocking levelsof productsshould not beconsideredin Isolation ofeachother, group should beconsidered as awhole.

Manufacturing Services

Low High

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Demand Variance

Manufacturing Services

Low High

y The unpredictabilityofdemandisoften greaterin services,

esp. forSKUin given storewithsmall avg. no.of unitssold.

y For eg. 50% ofdry goodsSKUsells fewerthan 1 unit per

weekon avg.H

oweveron a given day an interestedcustomermayclean outentirestock.

y This highvariancemakesinventorydecisionstough.

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Information Accuracy

y Inventory information fromsystemcan bemisleading in caseofServices likesupermarkets.

y This isduetothe presenceof Customer Misshelving

y Eg.Someone picks a Jarofketchup from aisle 9 andchangeshis

mind anddepositsitin aisle 12.

As a resultone lessketchup sitsonshelf but notin computersystem.As a result grocerstill musttrackinventory by physicallywalking the aisle.

y Customer misshelving is perhapsworstin retail bookstores, wherea booktaken out fromonesection isreshelvedbycustomerin

othersection.T

he problemismagnified forthiscase becausebooksdo not lookoutof place, unlike a bottleofketchup keptnextto biscuitscounter.

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Inventory management in Healthcare

services like

y Inventorymanagement andcontrol athospitalsshould be

simple andeective toensurethe availabilityofitems.y Main objectiveis nottominimizethetotal inventorycosts.

y Theirmain concern isthe availabilityofitems, otherwisethe

demandis lostsincemedical careis urgent, andthehospital

stacannotwait for backorders.

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y Thereplenishment processshould besimple.Hospital sta

do notwanttospendtimeon inventorycontrol.

y Tospeed up thereplenishment process, ordersizes arexed

suchthattheremaining unitson stock are notcounted at anorderinstant.

y Fixedordersize policies (FOSPs) arerequired forsuch

situations.

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Inventory management in Healthcare

services

y Medical supplies arestored atmany locationsin a hospital

andin largequantitiestoensurethatstockoutshardlyoccur

y Hence, importanttond a balance between thedesired

servicequality andtherequiredinventory levels.

y Healthcaresupplychains arecharacterized by a multitudeof

divergentsuppliers, products and patientcare unitsthat

arbitrarilyordermultipleitems

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y Proposedconceptstoimprovethe performanceofhealth

caresupplychains:

y Productstandardization : Reducesthe numberofdierent

itemsthathaveto bestocked.

y selecting primevendors: Reduce leadtimes, therefore, the

safetystock aswell.

y Suchdecisionsregarding standardization andthechoiceof

suppliers, areon tactical andstrategical level.

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Traditional versus JIT system in

hospitals

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Inventory management and control in

rental services like

y Itemsin a rental system arehighlyinterchangeable Substitutionishighly prevalent

y Performanceismeasured forthesingleitem (original)demandorfor a group ofitemswhichincludesthesubstitute products fortheoriginal demand.

y

Performanceindicators are:y Availabilityofrequesteditems:measureseffectiveness

y Accessibility:whichmeasuresthe amountoftimerequiredtoobtainan item

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Classication of the customers

reaction to handle excess demand:

y Thecustomerwantstohavethespecic item andmakes areservation (Backorder)

y If available at another location, itsimmediatelytaken otheshelves andsenttothecustomer (Transshipment)

y Thecustomerwantstohave a similaritem thatisimmediately available (Substitution)

y Thecustomer leavestheinventorysystememptyhanded(lostsales)

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and collection control at rental

companies

y Availability being an important performancemeasure, the

rental company needstohavesucient numberof units

availabletosatisfythecustomersrequests

y T

he numberof units (stockquantity)can besolved bymaking a prole ofthecurrentcollection andrelatethisto

the usagedata ofitems andto future predictionson

customersrequests

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y Collection control issubjectedto budget andshelfspace-

there areconstraintson the numberof units a rental

companycan buy, own anddisplay

y T

hecollection in librariesshould be up todate, multiformandrepresentative fortheeld ofknowledge andculture