Agriculture Reference
In-Depth Information
Since the average demand for garden tillers is 25 per week, and it takes Mike two weeks to
receive the order, he will need at least 50 garden tillers in stock to avoid running out during
lead time.
Despite the fact that Mike and Rita's lead-time is two weeks, it is not necessary for Mike
to issue an order every two weeks. For example, suppose that each truck were capable of
loading and delivering 100 garden tillers. In the pipeline inventory system, this would mean
that a truck delivering every two weeks would go from factory to warehouse half-empty.
Rather than use this costly method of operation and fi ll out double the paperwork, Mike
would probably order 100 garden tillers every four weeks. Since
cycle
or
lot-size invento-
ries
may be considerably larger than pipeline inventories, it goes without saying that use of
this method is subject to constraints of available storage space and transportation savings,
and dependent on projected future sales.
We have been assuming that Mike and Rita are dealing with rock-steady weekly
demands, constant lead times, and standard truck capacities. In the real world of agribusiness
enterprise, this is never the case. Demand varies from week to week, as does the length
of time it takes to get an order fi lled. These differences are taken into account by
safety
stock
or
buffer inventories
, which provide additional stock to offset potential
variations.
As explained in
Chapter 14
, agribusiness products are often highly seasonal. Mike and
Rita might sell as many as 200 garden tillers a week during peak season, or as few as two
during the off-season. Rita has the choice of planning for much higher labor costs at peak
season or for costly storage of extra garden tillers in off-season. Both these risks can be
avoided by
anticipation
or
seasonal inventories
. Under this system, storage space is pro-
vided for products whose demand is not constant so that more are available during peak
seasons.
Inventory management systems
Supply chain management systems typically look at demand in two different ways—inde-
pendent demand and dependent demand. Retail merchandise, services, and fi nished goods
are types of goods driven by independent demand. The demand for a combine is an example
of independent demand—individual farmers demand combines. Dependent demand, on the
other hand, is derived from the demand for another item or from production decisions. For
example, the demand for tires for new combines is derived from production schedule deci-
sions and ultimately from the farmer demand for the combine. There are two basic inventory
tracking systems for products with independent demand: periodic or continuous. Although
most agribusinesses use a combination of both systems, fi rms are increasingly relying on
continuous tracking systems that are automated.
Periodic inventory
is an actual physical count of stock on hand, conducted at regular
intervals, perhaps each month (
Figure 15.3)
. This kind of inventory has the disadvantage
that, taken by itself, it leaves the day-to-day status of the inventory in doubt. However,
record keeping is minimized and the periodic inventory is very reliable at that time. A good
example of this system is the direct store-door delivery of soft drinks and salted snacks to
supermarkets by suppliers. On a regular basis, weekly or more frequently, the inventory of
these products is reviewed and orders placed.
Continuous inventory
is exactly what its name indicates, a constant monitoring of stock
on hand (
Figure 15.4)
. Whenever sales are made or inventories are replenished, the total
amount is subtracted from or added to the previous inventory total. Usually, a count of
