Home Artificial Intelligence Data Science for Sustainability— Green Inventory Management Problem Statement Simulate Green Inventory Management Scenarios Results of a Green Inventory Management Simulation Conclusion About Me Reference

Data Science for Sustainability— Green Inventory Management Problem Statement Simulate Green Inventory Management Scenarios Results of a Green Inventory Management Simulation Conclusion About Me Reference

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Data Science for Sustainability— Green Inventory Management
Problem Statement
Simulate Green Inventory Management Scenarios
Results of a Green Inventory Management Simulation
Conclusion
About Me
Reference

Scenario: Inventory Management for Retail

You might be the Data Science Manager of a world clothing group that has stores all world wide.

Supply Chain Network of Fashion Retail Company — (Image by Creator)

The distribution team is managing the replenishment of stores from local warehouses.

Your colleague, the Inventory Manager, is answerable for setting the shop replenishment rules within the ERP.

Inventory Management Rules — Periodic Review Policy — (Image by Creator)

She has implemented a periodic review policy Order-Up-To-Level (R, S)

  • The ERP is reviewing stores’ inventory levels (also called inventory readily available) every R days: IOH
  • For every review, the gap between the inventory level and the goal inventory S is calculated: S — IOH
  • A Replenishment Order is created and transmitted to the warehouse with the amount Q = S — IOH

The concept is to deliver the missing quantity to achieve this goal level.

Replenishment Process — (Image by Creator)

After transmission, the order is ready on the warehouse and delivered to your store after a certain lead time LD (days).

The goal stock is defined to soak up the demand variability and the replenishment lead time to avoid stock-outs (empty shelves) at the shop.

Formulas to set the goal stock — (Image by Creator)

I is not going to enter the main points of tips on how to set these differences in this text.

Nevertheless, if you happen to need more information, you’ll find an in depth explanation in this text.

Amongst the important thing parameters of this rule is the time between two reviews, which can drive the frequency of replenishment in your stores.

What if we alter this review period?

What’s Green Inventory Management?

The review period is setting the frequency of store replenishment order creation.

  • For R = 2 days: stores are replenished very incessantly
    You may set a lower goal stock level to cover the demand in the course of the review period.
  • For R = 15 days: stores are replenished less incessantly
    The order quantity per replenishment should be higher as your goal stock level needs to soak up the demand during a longer review period.

On the left side, we have now more store deliveries (with a lower quantity per shipment) for a similar duration.

R = 15 Days (Left) / R = 4 Days (Right) — (Image by Creator)

This can definitely impact the efficiency of your warehouse and transportation operations.

Can we estimate the impacts of those two different approaches on the CO2 emissions?

You may simulate these and help your colleague estimate the impact of her inventory rules on the consumption of cartons and CO2 emissions.

Impact on the carton usage
Items are delivered on the stores in cartons containing units picked individually.

Handling Unit — (Image by Creator)

If the shop orders 5 units of the reference XXX, the operator will

  • Open a box of 20 units and take 5 units;
  • Take a brand new box and put these 5 units;
  • Complete the box with other items ordered by the shop;

We must use additional carton material to create these mixed cartons containing different items. (as a substitute of shipping full cartons)

What number of additional mixed cartons do we have now to arrange?

You may calculate the full variety of mixed cartons using the formula below.

Formulas — (Image by Creator)

These boxes (or mixed cartons) would require additional packing material that may impact your footprint.

With the next replenishment frequency, the amount per replenishment is reduced, and this case can occur more.

Can we estimate the impact on the Transportation efficiency?

Impact on transportation emissions
As it’s the predominant driver of CO2 emissions, it is best to also estimate the impact on the variety of trucks used and their filling rate.

The review period impacts the variety of deliveries during a certain period.

Delivery Frequency Impact — (Image by Creator)

For example, doubling the delivery frequency will

  • Multiply the variety of delivers for the same amount replenished;
  • Reduce the amount per replenishment and potentially increase the space in trucks

How can we translate these insights in estimated CO2 emissions increase?

In the subsequent section, we are going to translate these operational insights right into a simulation model to pick the optimal inventory rules.

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