Inventory Policies Across Echelons of Supply Chain and Variance of Supply Chain Inventory

Abstract

A model is built in order to study the impact of variance of demand on the supply chain inventory and also to identify the best combination of the inventory policy across the supply chain. Inventory management at independent entities is to either prevent stock out or for having lowest funds locked up. This might result in the either higher inventory holding or stock out across the supply chain. Simulation study was undertaken on four echelon supply chain. With the demand varying from 10% to 70%, the best combination inventory policy had a supply chain inventory SD varying from 11.5% to 18.9% respectively. Demand flow policy at retailer, manufacturer and supplier with s,Q policy at wholesaler would result in the least standard deviation of inventory across the supply chain for low demand variance product. Similarly, s,Q policy at retailer, supplier and s,S policy at wholesaler and demand flow policy at manufacturer is the optimum set for having least standard deviation of inventory across the supply chain for high demand variance product.