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Incoming goods flow into US at the rate of $423 billion every year. Imagine the supply chain to...

Question:

Incoming goods flow into US at the rate of $423 billion every year. Imagine the supply chain to be a long pipeline where goods are put in at one end, and they come out at the other end (at the Ports). Due to inspection and increased congestion, the lead time (flow time) has increased. Suppose the flow time increases by one day. What is the increase in inventory (in the pipeline) on account of the one-day delay (in billions of $)? Assume the same rate of flow of $423 billion per year.

Pipeline inventory:

Pipeline inventory is the inventory which is in-transit and about to treach the delivery destination. When the company makes an order then this takes time to reach the ordered quantity.

Answer and Explanation:

According to Little's law:

Work-in-progress = Throughput x flow time

Throughput = $423 billion

Lead time = 1 year

WIP1 = $423 x 1 = $423 billion

If the flow time is increased by 1 day or (1/365) year, the flow time becomes:

Flow time = 1 + (1/365) = 1.00274

Assuming same throughput, {eq}WIP_{2} {/eq} = $423 x 1.00274 = 424.16

Increase in inventory due to 1 day delay = WIP = 424.16 - $423 = $1.16 billion

The inventory (in the pipeline) increases by $1.16 billion in on account of the one-day delay


Learn more about this topic:

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What Is Inventory? - Definition & Example

from Business 112: Operations Management

Chapter 13 / Lesson 7
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