Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

12.1.4 Operating Curves for Stock on Hand

Intended learning outcomes: Explain the derivation of an operating curve for stock on hand from the store throughput diagram.

Operating curves for stock on hand describe delivery delays and time in storage in relation to the inventory.

Operating curves for stock on hand are created by representing different inventory statuses in condensed form as a curve. Figure shows how the operating curves for the stock on hand of an item can be derived from the store throughput diagram (see Figure See also [Wien97].

Inventory stock at a given point in time corresponds to the vertical distance between the stock receipts and stock issues curves. By considering the size of these areas, we can then calculate performance indicators such as mean inventory stock, mean time in storage, and mean delivery delay. See also [Gläs95].

Figure shows the store throughput diagrams for three different inventory statuses. These statuses differ primarily with respect to mean inventory stock.

Fig.       Derivation of an operating curve for stock on hand from the store throughput diagram (see [Wien97], p. 173).

  • Inventory status I has a high stock level. There are no delivery delays, because any demand can be fulfilled immediately. The mean time in storage is very long, however.
  • For inventory status II, the mean time in storage is much shorter than for inventory status I. However, there are occasional supply bottlenecks; that is, periods in which demand cannot be satisfied.
  • In inventory status III, no stocks are available over relatively long periods. Further demand cannot be satisfied, which leads to very long delivery delays.

Let us now consider Fig. Applying the three inventory statu­ses and their perform­ance indicators — mean time in storage and mean delivery delay — to inventory stocks, we obtain the associated operating curves for stock on hand by joining up the points. This type of curve can be created in practice using analytical methods or by simulation. See [Gläs95].

The use of operating curves for stock on hand thus enables us to represent the interdependencies between quantitatively determinable logistic performance indicators in graph form. Operating curves for stock on hand enable us to derive target values for the important cost factor of inventory stock for the purposes of inventory control. This is analogous to the use of logistics operating curves for work stations (see Section 13.2.4). This form of graphical representation is useful for evaluating and improving procurement processes, analyzing capability when selecting suppliers, and comparing the power of different inventory control techniques. Typical examples include:

  • The flatter the increase in the mean time in storage curve, the higher the stock-inventory turnover.
  • The closer the mean delivery delay curve is to the two axes, the more closely inventory entries mirror inventory issues (and thus demand).

Course section 12.1: Subsections and their intended learning outcomes