Discussion on animal biology

Animal Biology
50 question HW due by 11:59 PM. time: 70 minuteson the following questions:Vertebrate Origins-Basal Chordata,Cartilaginous FishesBony Fishes (Actinopterygii & Sarcopterygii)Frogs & SalamandersAmniotic Egg(Reptilia I: Amniota & Reptilia Tuataras, Lizards, & Snakes, Squamata.

Introduction

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  • The world is facing significant energy and environmental challenges.
  • 30% of the global population lack access to electricity as they depend on fossil fuel as the main source of energy.
  • Nuclear power and natural gas offer alternative energy solution which is environmentally friendly, cost-effective and time-efficient.
  • Nuclear power is cost-competitive, has a secure base-load electricity supply, doesn’t emit greenhouse gas and can be expanded to a large scale.
  • Natural gas is a fossil fuel that provides 29% of daily energy consumption globally.

Background (Natural Gas Power)

  • Natural gas is formed from plants and animals remains in the subterranean layer of the earth.
  • Pressure and heat decompose these remains into petroleum, coal and natural gas.
  • These fuels can be combusted in both open-cycle and combined-cycle to generate electricity.

Background (Nuclear Power)

  • There are 96 Nuclear Power Stations in United States that provides 19.8% of U.S. electricity.
  • Current uses:
  • Electricity Generation, Marine Propulsion, Heating,

Desalination, Hydrogen Production • Fission Process

  • Atoms splitting releasing a large of amount of energy in the form of heat
  • Material/ Cooling Fluid
    • Uranium or plutonium
    • Water, sodium, lead, or hydrogen
  • Reactor Types in United States
    • Boiling-Water Nuclear Reactors (33.3%)
    • Pressurized-Water Nuclear Reactors. (66.6%)

Comparison

 

 

 

 

 

 

 

 

Motivation

  • Sugar Land receives power from
    • Brazos Valley Generating Facility (676 MW) • WA Parish Generating Station (3.65 GW)
  • Combined, these facilities produce 16.3 million tons of CO2 per year.
  • Use a combination of Coal-burning Engines and Combined Cycle Internal Combustion Engine (Natural Gas)

 

Objective

  • Analyze the economic and environmental impact of a power plant servicing a county area like that of The Brazos Valley Generating Facility (peak capacity of 600 MW)
  • Compare the benefits of using a 200 MW gas turbine system vs. a 200 MW Small Modular Nuclear Reactor (SMR).
  • For a 200 MW combined cycle gas turbine (CCGT) power plant: • Analyze the efficiency
    • Determine fuel consumption
    • Calculate emissions

 

Methodology

The Natural Gas Plant is a 600 MW facility using 3 Combined Brayton Cycle Internal Combustion engines.

Modeled Engine is 200 MW operating at a Capacity factor of 70%.

Fuel is composed of:
• 90% Methane (CH4)
• 8% Ethane (C2H6)
• 2% Nitrogen (N2)
• Standard conditions (1 atm, 25°C)

 

1
Appendix A- Formulas Conservation of mass:
∑ 𝑚̇ 𝑖𝑛 = ∑ 𝑚̇ 𝑜𝑢𝑡 (1) Energy balance equation:
𝑄̇ + ∑(𝑚̇ ℎ)𝑖𝑛 = 𝑊 ̇ + ∑(𝑚̇ ℎ)𝑜𝑢𝑡 (2) Entropy balance equation:
∑ 𝑆𝑖𝑛 ̇ − ∑ 𝑆𝑜𝑢𝑡 ̇ + 𝑆𝑔𝑒𝑛 ̇ = 𝑑𝑆𝑠𝑦𝑠𝑡𝑒𝑚 ̇ 𝑑𝑡 (3) Relating heat transfer to entropy transfer:
𝑆̇
ℎ𝑒𝑎𝑡 =
̇𝑄 𝑇 (4) Relating entropy transfer to mass flow:
𝑆̇
𝑚𝑎𝑠𝑠 = 𝑚̇ 𝑠 (5) Exergy balance equation:
𝐸̇ 𝑥
ℎ𝑒𝑎𝑡 + 𝑊 ̇ = ∑ 𝑚̇ 𝑜𝑢𝑡𝜀𝑜𝑢𝑡 − ∑ 𝑚̇ 𝑖𝑛𝜀𝑖𝑛 + 𝐸̇ 𝑥𝑑𝑒𝑠𝑡 (6)
𝐸̇ 𝑥
𝑙𝑜𝑠𝑠 = 𝑇0𝑆𝑔𝑒𝑛 ̇ (7) Net exergy transfer of heat:
𝐸̇ 𝑥
ℎ𝑒𝑎𝑡 = ∑ (1 − 𝑇 𝑇 0) 𝑄̇ (8) Partial flow and total exergy rates:
𝜀 − (ℎ − ℎ0) − 𝑇0(𝑠 − 𝑠0) (9)
𝐸̇ 𝑥 = 𝑚̇ 𝜀 (10) Exergy efficiency equations:
2
𝜂 =
𝐸
𝑖𝑛
𝑡𝑜𝑡𝑎𝑙𝐸
𝑖𝑛 (11)
𝜂𝐼𝐼 =
𝐸𝑥𝑒𝑟𝑔𝑦𝑜𝑢𝑡
𝑇𝑜𝑡𝑎𝑙𝐸𝑥𝑒𝑟𝑔𝑦 (12) Fuel-air ration equation:
𝜆 =
𝑛𝑓 𝑛𝐴
=
𝑓𝑢𝑒𝑙𝑚𝑜𝑙𝑒𝑓𝑟𝑎𝑐𝑡𝑖𝑜𝑛
𝑎𝑖𝑟𝑚𝑜𝑙𝑒𝑓𝑟𝑎𝑐𝑡𝑖𝑜𝑛 (13) Combustion of fuel:
λCH4 + [0.7748N2 + 0.2059O2 + 0.003CO2 + 0.019H2O]
→ |1 + λ|[𝑥𝑁2N2 + 𝑥𝑂2O2 + 𝑥𝐶𝑂2CO2 + 𝑥𝐻2𝑂H2O] Molar ratios of combustion products:
𝑥
𝑁
2 =
0.7748
1+𝜆 𝑥𝑂2 =
0.2059−2𝜆
1+𝜆 𝑥𝐶𝑂2 =
0.003+𝜆
1+𝜆 𝑥𝐻2𝑂 =
0.019+2𝜆
1+𝜆 (14)
0 = 𝑄̇ 𝐾𝐻 + 𝑛𝑓ℎ𝑓 + 𝑛𝐴ℎ𝐴 − 𝑛𝑐𝑝ℎ𝑐𝑝 (15) Ideal-gas mixture principles:
ℎ𝐴
= [0.7748ℎ𝑁2 + 0.2059ℎ𝑂2 + 0.003ℎ𝐶𝑂2 + 0.019ℎ𝐻2𝑂](𝑇2) (16)
(1 + 𝜆)ℎ𝑓 = [0.7748ℎ𝑁2 + (0.2059 − 2𝜆)ℎ𝑂2 + (0.003)ℎ𝐶𝑂2 + 0.019ℎ𝐻2𝑂](𝑇3) (17) Mass flows of fuel and air:
𝑚𝑓
= 𝜆 (𝑀 𝑀𝑓 𝐴) 𝑚𝐴 (18) Or using the fuel subthermal value LHV:
𝑄𝐺 = 𝑚 ∙3 ℎ3 − (𝑚 ∙2 ℎ2 + 𝑚 ∙𝑓 𝐿𝐻𝑉) (19) Net exergy transfer of fuel:
𝐸𝑥
𝑓 = 𝑚𝑓
𝑒
𝐶𝐻4
𝑀
𝐶𝐻4 (20) Standard chemical exergy of fuel:
𝑒𝑓
= 𝜉𝑥 𝐿𝐻𝑉 (21)
3
In terms of the turbines and compressors Airflow in the gas turbine:
𝑊 = 𝑊
𝑎
𝑃𝑎 𝑃
𝑎𝑜
𝑇
𝑖𝑜
𝑇𝑖 (1) Compressor discharge temperature:
𝑇𝑑
= 𝑇
𝑖 (1 + 𝑥 𝜂 − 𝑐 1) (2)
𝑥 = (𝑃 𝑟𝑜𝑊)𝑦−
1𝑦 (3) The gas turbine inlet temperature:
𝑇𝑓
= 𝑇
𝑑 + (𝑇 𝑓𝑜 − 𝑇𝑑𝑜) 𝑊 𝑓
𝑊 (4) Gas Turbine exhaust temperature:
4
𝑇𝑒
= 𝑇
𝑓[1 − (1 − 1 𝑥) 𝜂𝑡 (5) Efficiency of a combined cycle (unfired):
𝜂𝑐𝑐 = 𝜂𝑔𝑡 + 𝜂𝑠𝑡(1 − 𝜂𝑔𝑡) (6) The thermal efficiency of a simple gas turbine cycle:
𝜂 =
(1 − 𝑃 1 𝑝) (𝑎 − 𝑃 𝑝)
𝜂𝑐(𝑘1 − 1) − 𝑃 𝑝 + 1 (7) Differentiating Equation (6) gives:
𝜕𝜂𝑐𝑐
𝜕𝜂𝑔𝑡 = 1 +
𝜕𝜂𝑠𝑡
𝜕𝜂𝑔𝑡 (1 − 𝜂𝑔𝑡) − 𝜂𝑠𝑡 (8) Overall efficiency improves with the increase in gas turbine efficiency if:
𝜕𝜂𝑐𝑐
𝜕𝜂𝑔𝑡 > 0 (9) If equation (8) and (9) are compiled:

𝜕𝜂𝑠𝑡
𝜕𝜂𝑔𝑡 < (1 1 − − 𝜂 𝜂𝑔𝑡 𝑠𝑡 ) (10)
5
Appendix B – Natural Gas Calculations Power per Year Assume capacity factor of 70% Power Produced = 0.7 × 200𝑀𝑊 = 140𝑀𝑊 Generator. 420 MW Facility wide. Power Produced Per Year = 140𝑀𝑊 × 365 𝑑𝑎𝑦𝑠 × 24 𝐻𝑜𝑢𝑟𝑠 × 60 𝑀𝑖𝑛 × 60 𝑠𝑒𝑐
= 4.4 ∗ 109 𝑀𝑊ℎ/𝑦𝑒𝑎𝑟 per generator. Facility wide = 13.2 ∗ 109 𝑀𝑊ℎ/𝑦𝑒𝑎𝑟. Fuel Consumed per year Lower Heat Value – LHV Natural Gas = [0.9×50 𝑀𝐽/𝐾𝑔]+[0.08× 47.8 𝑀𝐽/𝐾𝑔]+[0.02×0.0 𝑀𝐽/𝐾𝑔]
(1 𝐾𝑔)𝑁𝑎𝑡𝑢𝑟𝑎𝑙 𝐺𝑎𝑠 =
48.82 𝑀𝐽/𝐾𝑔 Assume Overall efficiency – 𝜂𝑜𝑣𝑒𝑟𝑎𝑙𝑙 = 33% Fuel Consumed = Power Produced Per Year
𝜂𝑜𝑣𝑒𝑟𝑎𝑙𝑙×LHVNatural Gas
=
4.4∗109 𝑀𝑊ℎ/𝑦𝑒𝑎𝑟
0.33×48.82𝑀𝐽
𝐾𝑔
= 2.73 ∗ 108𝐾𝑔/𝑦𝑒𝑎𝑟 per generator, 8.19 ∗ 108𝐾𝑔/𝑦𝑒𝑎𝑟 Facility wide generation. Tons CO2 Produced per year CH4 + 2O2 → CO2 + 2H2O | 2C2H6 + 2O2 → 4CO2 + H2O | N2→ N2 M methane = 16.043 kg/mole, M ethane = 30.070 kg/mole, M nitrogen = 28.0134 kg/mole M carbon dioxide = 44.01 kg/mole Combustion = 16.043 kg/mole
44.01 kg/mole + 2 30 ×44 .070 .01kg kg // mole mole + 28 28..0134 0134 kg kg/ /mole mole CO2 produced = (0.9 ×2.73∗108𝐾𝑔/𝑦𝑒𝑎𝑟)×16.043 kg
44.01 kg + (0.08× 2.73 2× ∗10 44 8 .01 𝐾𝑔kg )×30.070 kg = 9.7 ∗ 107 𝐾𝑔 Tons of CO2 = 106,953.19 US Tons are produced each year or 97,026.3 Metric Tons. CO2 Produced per MWh = 9.7 ∗ 107 𝐾𝑔 / 13.2 ∗ 109 𝑀𝑊ℎ = 7.348 grams/MWh Facility wide – 22.05 grams/MWh, 291,079 Tons/year
6
Appendix C- Nuclear Calculations Power per Year Assume capacity factor of 90% Power Produced = 0.9 × 200𝑀𝑊 = 180𝑀𝑊 Generator. 540 MW Facility wide. Power Produced Per Year = 180𝑀𝑊 × 365 𝑑𝑎𝑦𝑠 × 24 𝐻𝑜𝑢𝑟𝑠 × 60 𝑀𝑖𝑛 × 60 𝑠𝑒𝑐
= 5.7 ∗ 109 𝑀𝑊ℎ/𝑦𝑒𝑎𝑟 per generator. Facility wide = 17.0 ∗ 109 𝑀𝑊ℎ/𝑦𝑒𝑎𝑟.
7
Appendix D- Gantt Chart
8
Appendix E- Project Checklist
Video Report Checklist
Name: _____________________________________________________
Please complete this checklist and include in Appendix when you submit for this course in Canvas.
___ I have addressed all parts of the assignment.
___ Project analyzes a sufficient amount of pertinent technical information in the development of a
few feasible solutions to meet the project objective.
___ Most ideas in every section are logically developed and directly linked to the main point of the
section.
___ Most ideas in every section are connected by transitions.
___ Oral presentation has clear and appropriate syntax, diction, tone, and non-verbal elements.
___ The visual, audio, or other presentation materials meet professional standards, are integrated
into the presentation, and do not substitute for but instead balance oral components.
___ My presentation meets the time limit of 20 minutes.
___ I have revised my paper ___ times to improve its organization, argument, structure, and style as
needed.
___ Created a video link for text entry submission.
___ Create a separate Appendix file in pdf format for file submission.
___ I have not used anyone else’s work, ideas, or language without citing them appropriately
___ All my sources are in my bibliography slide(s), which is properly formatted in IEEE style.
___ I have read the plagiarism statement in the syllabus, understand it, and agree to abide by the
definitions and penalties described in the course.
___ I have created, updated and included Gantt Chart in Appendix.
___ I have completed this checklist and included it in Appendix.
Student Signature: _______________________________________
Date: _________________________
9
References
[1] P. Usapcin and O. Chavalparit, “Life Cycle Assessment of Producing Electricity in Thailand: A Case
Study of Natural Gas Power Plant,” in International Symposium on Civil and Environmental
Engineering, Wuhan, 2016.
[2] S. Yazdani, E. Salimipour and M. S. Moghaddam, “A Comparison Between a Natural Gas Power
Plant and a Municipal Solid Waste Incineration Power Plant Based on an Energy Analysis,” Journal
of Cleaner Production, vol. 274, no. 123158, pp. 1-10, 2020.
[3] M. Karimi, M. Hillestad and H. F. Svendsen, “Natural Gas Combined Cycle Power Plant Integrated
to Capture Plant,” Energy and Fuels, vol. 26, no. 3, pp. 1805-1813, 2012.
[4] U. Ali, E. O. Agbonghae, K. J. Hughes, D. B. Ingham, L. Ma and M. Pourkashanian, “Technoeconomic Process Design of a Commercial-scale Amine-based CO2 Capture System for Natural Gas
Combined Cycle Power Plant with Exhaust Gas Recirculation,” Applied Thermal Engineering, vol.
103, no. 2, pp. 747-758, 2016.
[5] C. A. Kang, A. R. Brandt and L. J. Durlofsky, “A New Carbon Capture Proxy Model for Optimizing the
Design and Time-varying Operation of a Coal-Natural Gas Power Station,” International Journal of
Greenhouse Gas Control, vol. 48, no. 2, pp. 234-252, 2015.
[6] M. O. Karaagac, A. Kabul and H. Ogul, “1st and 2nd Law Thermodynamic Analyses of a Combined
Natural Gas Cycle Power Plant,” Turkish Journal of Physics, vol. 43, no. 1, pp. 93-108, 2019.
[7] M. R. B. Tavakoli, B. Vahidi and W. Gawlik, “An Educational Guide to Extract the Parameters of
Heavy Duty Gas Turbines Model in Dynamic Studies Based on Operational Data,” IEEE Transactions
on Power Systems, vol. 24, no. 3, pp. 1366-13744, 2009.
[8] N. Kenny, “Determining the Cost of Electricity of a Natural Gas Generator,” LSU Agricultural Center
Publication 3241-D, pp. 1-4, 24 July 2013.
[9] W. Rowen, “Simplified Mathematical Representations of Heavy-duty Gas Turbines,” Journal of
Engineering for Gas Turbines and Power, vol. 105, no. 4, pp. 865-869, 1983.
[10] N. Fathi, P. McDaniel, S. S. Aleyasin, M. Robinson, P. Vorobieff, S. Rodriguez and C. d. Oliveira,
“Efficiency Enhancement of Solar Chimney Power Plant by Use of Waste Heat from Nuclear Power
Plant,” Journal of Cleaner Production, vol. 180, no. 2, pp. 407-416, 2018.
[11] I. Pioro and R. Duffey, “Nuclear Power as a Basis for Future Electriciy Generation,” Journal of
Nuclear Engineering and Radiation Science, vol. 1, no. 1, pp. 1-19, 2015.
[12] Y. Oka, H. Madarame and M. Uesaka, An Advanced Course in Nuclear Engineering, Tokyo: Springer,
2014.
10
[13] D. G. Cacuci, Handbook of Nuclear Engineering, New York: Springer, 2010.
[14] A. Ayodeji, Y.-k. Liu and H. Xia, “Knowledge Base Operator Support System for Nuclear Power Plant
Fault Diagnosis,” Progress in Nuclear Energy, vol. 105, no. 1, pp. 42-50, 2017.

Global Logistics
Inventory management models in
global supply chains – part 1
Module 3|Inventory management
TRA4721– Global Logistics and Supply Chain Management
Refresh
TRA4721– Global Logistics and Supply Chain Management
Inventory impact: costs
3
• Inventory has associated “carrying costs”
• Financial cost
• Storage costs
• Obsolescence cost
Usually expressed not in monetary value, but in percentage (also called inventory holding rate)
e.g., 10%/year in the high-tech industry
1-5%/month for commodities
9%/biweekly for fresh food
The inventory holding rate is applied to the value of the inventory
• The idea is that carrying inventory generates assets for a certain amount of $, and a
percentage of this amount represents the cost of carrying this inventory
In our example, let’s assume the holding rate for iPad is 10%
TRA4721– Global Logistics and Supply Chain Management
Inventory impact: costs
4
• Inventory has associated administrative costs!
• Order costs
§ Check product availability and discuss conditions
§ Orders preparation
§ Order management (tracking and tracing, solicit…)
§ Goods control and reception management
Usually expressed as “cost per order”
According to Center for Advanced Purchasing and Supply Management, the
cost per order varies from $53 to $ 741!!
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
5
• The sawtooth diagram with single reorder point
Time
Consumption
Q = 60
We need new products as
we are out of stock!
Reorder point = 20
LT = 2 days
External demand
I want 10 per day
Cycle stock = 30
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
6
• How much is the value of this inventory, and how much does it cost to carry this inventory?
§ Let’s assume the cost per pants (not the price!) is 15 $/unit, and the holding rate 10%
Inventory in the retail store
Value of the inventory (asset,
balance sheet) =
30 units/year* 15 $/unit = 450
$/year
Cost of carrying the inventory
(cost, income statement) =
30 units/year * 15 $/unit * 10%=
45 $/year
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
7
• How much is the administrative costs of holding inventory of pants in the retail store?
§ Let’s assume that the cost per order of pants is 20 $/order
Total demand in a year
= 10 units/day * 365 =
3,650 pants/year
60
Number of order per year
= (3,650 units/year)/ (60
units/order) = 60.83 = 61
orders/year
Order costs per year = 61
orders/year * 20 $/order =
1,220 $/year
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
8
• In summary: what are the implications of holding inventory of pants?
Balance sheet
Assets
Inventory: + $ 450
Income statement
Expenses
Inventory cost: + $ 45
Revenues
Liabilities
Order cost: + $ 1,220
Inventory in the retail store
• Reorder quantity: 60 units
• Cycle stock: 30 units
• Reorder point: 20 units
• Lead time: 2 days
30
Return of investment =
Revenues – Costs
Total assets
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic?
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic? The safety stock
10
• Variability in the demand exist, as well as variability in the delivery lead time
§ You need additional resources (inventory) to cope with this risks (the safety stock)
Inventory
Time
Inventory
Time
Safety stocks
No stock out!
Stock-out
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic? The safety stock
11
Safety stock:
• Additional resource (and money)
• Needs an appropriate management (to
be replenished immediately after
usage)
Cycle stock:
• To support normal production execution
• Follows the fixed reorder point model
Inventory
Time
LT LT LT
ROP
Re-Order point:
Q
d
TRA4721– Global Logistics and Supply Chain Management
Inventory management models in global supply chains
TRA4721– Global Logistics and Supply Chain Management
The inventory management problem
13
Iphone factory
We need raw
materials and
components to
produce!
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Iphone distribution center
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
We need finished
products to be brought to
the retailers!
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
14
• Two key questions unanswered:
1. How much is reordered every
time?
2. When safety stock are needed
and how to dimension them?
DEMAND UNCERTAINTY
SUPPLY
UNCERTAINTY
Low High
Low
High
Efficient
supply
chains
Responsive
supply
chains
Riskhedging
supply
chains
Agile
supply
chains
Variability of the
demand
Variability of the
lead time
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
15
DEMAND UNCERTAINTY
SUPPLY
UNCERTAINTY
Low High
Low
High
Efficient
supply
chains
Responsive
supply
chains
Riskhedging
supply
chains
Agile
supply
chains
Economic order quantity
model for both
materials/parts and
finished products; no
safety stock
Economic order quantity
model for finished
products; no safety stock
Economic order quantity
model materials/parts ,
with safety stock
Just-in-time dynamic
models for finished
products (e.g., dynamic
reorder; newsvendor
model; continuous
replenishment), with safety
stock
Economic order quantity
model for materials/parts;
no safety stock
Just-in-time dynamic models
for both materials/parts and
finished products (e.g.,
dynamic reorder; newsvendor
model; continuous
replenishment), with safety
stock
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
• For seek of simplicity for this course, we are only focus the
attention on
§ Economic order quantity à how much to reorder?
§ Safety stock à how to cope from risk?
• These are the most important models – adopted in 80% of the
supply chains!
16
TRA4721– Global Logistics and Supply Chain Management
The economic order quantity model
TRA4721– Global Logistics and Supply Chain Management
Inventory
level
time
Q
ROP
LT
Q/2
Fixed quantity Q is
always re-ordered
The downstream
consumption is
constant over time (d)
When inventory level falls below
the re-order point, a new lot is
ordered
The new lot arrives after
LT days
The Economic Order Quantity – Reorder point (EOQ-ROP) model
The quantity Q is called
Economic Order Quantity
(EOQ) because it is the
ONLY reorder value able
to minimize the costs of
inventory
management…
That’s why it is economic!
18
TRA4721– Global Logistics and Supply Chain Management
The Economic Order Quantity – Reorder point (EOQ-ROP) model
• Objective of the model: Identifying the quantity Q (in unit) to re-order that
minimizes the inventory management costs i.e.,:
1. Inventory carrying costs
2. Administrative costs
3. Stock-out costs
EOQ = ROP = d & LT
2 &

Global Logistics
Inventory management models in
global supply chains – part 1
Module 3|Inventory management
TRA4721– Global Logistics and Supply Chain Management
Refresh
TRA4721– Global Logistics and Supply Chain Management
Inventory impact: costs
3
• Inventory has associated “carrying costs”
• Financial cost
• Storage costs
• Obsolescence cost
Usually expressed not in monetary value, but in percentage (also called inventory holding rate)
e.g., 10%/year in the high-tech industry
1-5%/month for commodities
9%/biweekly for fresh food
The inventory holding rate is applied to the value of the inventory
• The idea is that carrying inventory generates assets for a certain amount of $, and a
percentage of this amount represents the cost of carrying this inventory
In our example, let’s assume the holding rate for iPad is 10%
TRA4721– Global Logistics and Supply Chain Management
Inventory impact: costs
4
• Inventory has associated administrative costs!
• Order costs
§ Check product availability and discuss conditions
§ Orders preparation
§ Order management (tracking and tracing, solicit…)
§ Goods control and reception management
Usually expressed as “cost per order”
According to Center for Advanced Purchasing and Supply Management, the
cost per order varies from $53 to $ 741!!
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
5
• The sawtooth diagram with single reorder point
Time
Consumption
Q = 60
We need new products as
we are out of stock!
Reorder point = 20
LT = 2 days
External demand
I want 10 per day
Cycle stock = 30
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
6
• How much is the value of this inventory, and how much does it cost to carry this inventory?
§ Let’s assume the cost per pants (not the price!) is 15 $/unit, and the holding rate 10%
Inventory in the retail store
Value of the inventory (asset,
balance sheet) =
30 units/year* 15 $/unit = 450
$/year
Cost of carrying the inventory
(cost, income statement) =
30 units/year * 15 $/unit * 10%=
45 $/year
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
7
• How much is the administrative costs of holding inventory of pants in the retail store?
§ Let’s assume that the cost per order of pants is 20 $/order
Total demand in a year
= 10 units/day * 365 =
3,650 pants/year
60
Number of order per year
= (3,650 units/year)/ (60
units/order) = 60.83 = 61
orders/year
Order costs per year = 61
orders/year * 20 $/order =
1,220 $/year
TRA4721– Global Logistics and Supply Chain Management
How does inventory management work?
8
• In summary: what are the implications of holding inventory of pants?
Balance sheet
Assets
Inventory: + $ 450
Income statement
Expenses
Inventory cost: + $ 45
Revenues
Liabilities
Order cost: + $ 1,220
Inventory in the retail store
• Reorder quantity: 60 units
• Cycle stock: 30 units
• Reorder point: 20 units
• Lead time: 2 days
30
Return of investment =
Revenues – Costs
Total assets
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic?
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic? The safety stock
10
• Variability in the demand exist, as well as variability in the delivery lead time
§ You need additional resources (inventory) to cope with this risks (the safety stock)
Inventory
Time
Inventory
Time
Safety stocks
No stock out!
Stock-out
TRA4721– Global Logistics and Supply Chain Management
Is this model realistic? The safety stock
11
Safety stock:
• Additional resource (and money)
• Needs an appropriate management (to
be replenished immediately after
usage)
Cycle stock:
• To support normal production execution
• Follows the fixed reorder point model
Inventory
Time
LT LT LT
ROP
Re-Order point:
Q
d
TRA4721– Global Logistics and Supply Chain Management
Inventory management models in global supply chains
TRA4721– Global Logistics and Supply Chain Management
The inventory management problem
13
Iphone factory
We need raw
materials and
components to
produce!
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
Iphone distribution center
Inventory level
time
Q + SS
ROP*
Q/2 + SS
SS
Safety stocks
We need finished
products to be brought to
the retailers!
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
14
• Two key questions unanswered:
1. How much is reordered every
time?
2. When safety stock are needed
and how to dimension them?
DEMAND UNCERTAINTY
SUPPLY
UNCERTAINTY
Low High
Low
High
Efficient
supply
chains
Responsive
supply
chains
Riskhedging
supply
chains
Agile
supply
chains
Variability of the
demand
Variability of the
lead time
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
15
DEMAND UNCERTAINTY
SUPPLY
UNCERTAINTY
Low High
Low
High
Efficient
supply
chains
Responsive
supply
chains
Riskhedging
supply
chains
Agile
supply
chains
Economic order quantity
model for both
materials/parts and
finished products; no
safety stock
Economic order quantity
model for finished
products; no safety stock
Economic order quantity
model materials/parts ,
with safety stock
Just-in-time dynamic
models for finished
products (e.g., dynamic
reorder; newsvendor
model; continuous
replenishment), with safety
stock
Economic order quantity
model for materials/parts;
no safety stock
Just-in-time dynamic models
for both materials/parts and
finished products (e.g.,
dynamic reorder; newsvendor
model; continuous
replenishment), with safety
stock
TRA4721– Global Logistics and Supply Chain Management
Inventory management models
• For seek of simplicity for this course, we are only focus the
attention on
§ Economic order quantity à how much to reorder?
§ Safety stock à how to cope from risk?
• These are the most important models – adopted in 80% of the
supply chains!
16
TRA4721– Global Logistics and Supply Chain Management
The economic order quantity model
TRA4721– Global Logistics and Supply Chain Management
Inventory
level
time
Q
ROP
LT
Q/2
Fixed quantity Q is
always re-ordered
The downstream
consumption is
constant over time (d)
When inventory level falls below
the re-order point, a new lot is
ordered
The new lot arrives after
LT days
The Economic Order Quantity – Reorder point (EOQ-ROP) model
The quantity Q is called
Economic Order Quantity
(EOQ) because it is the
ONLY reorder value able
to minimize the costs of
inventory
management…
That’s why it is economic!
18
TRA4721– Global Logistics and Supply Chain Management
The Economic Order Quantity – Reorder point (EOQ-ROP) model
• Objective of the model: Identifying the quantity Q (in unit) to re-order that
minimizes the inventory management costs i.e.,:
1. Inventory carrying costs
2. Administrative costs
3. Stock-out costs
EOQ = ROP = d & LT
2 &

 

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