Optimizing inventory management costs in supply chains by determining safety stock placement

The inventory control systems has an important role to monitor the condition of the goods at the supply chain stage of goods distribution from the central warehouse to retail in accordance with consumer demand. The research aims to develop inventory control systems on the supply chain distribution of goods from suppliers to retail through the central warehouse with minimal supply chain costs. Minimization of supply chain cost using martingale model of forecast evaluation, and the result as the basis for calculation of safety stock and reorder point. The results of research are the system that can be used to control inventory and renewal of goods in the central warehouse by calculating the minimization of supply chain cost based on consumer demand. Case studies were conducted on the supply chain distribution of goods from the central warehouse to the retail in Semarang. The observation data derived from the goods distribution from central warehouse to retail for certain products over 4 time periods. Through such inventory control system, can minimize supply chain cost, and product inventory level can be maintained in time and amount of inventory that must be fulfilled.

One of the important aspects of supply chain management is inventory management because the cost of inventories in a supply chain accounts for about 30% of the value of the product. The main focus of this work is to study the performance of a single-product serial supply chain operating with a base-stock policy and to optimize the inventory (i.e. base stock) levels in the supply chain so as to minimize the total supply chain cost (TSCC), comprising holding and shortage costs at all the installations in the supply chain. A genetic algorithm (GA) is proposed to optimize the base-stock levels with the objective of minimizing the sum of holding and shortage costs in the entire supply chain. Simulation is used to evaluate the base-stock levels generated by the GA. The proposed GA is evaluated with the consideration of a variety of supply chain settings in order to test for its robustness of performance across different supply chain scenarios. The effectiveness of the proposed GA (in terms of generating base-stock levels with minimum TSCC) is compared with that of a random search procedure. In addition, optimal base-stock levels are obtained through complete enumeration of the solution space and compared with those yielded by the GA. It is found that the solutions generated by the proposed GA do not significantly differ from the optimal solution obtained through complete enumeration for different supply chain settings, thereby showing the effectiveness of the proposed GA.

One of the factors to increase the competitiveness is the price of product. One of the factors that affect the product price is inventory cost. Shortages inventory can result in the cessation of the production process so that inventory is one of crucial issue in the company's operation while overstock had an effect on high costs. This research aimed to obtain integrated inventory model between products and packaging materials to minimize the total cost of inventory at PT Indomex Dwijaya Lestari considering safety stock. Data used in this research are the major and minor setup cost, production cost (one cardboard products) , sales data of mineral water for cup and bottle products from January 2011-April 2013 , data of production bottle mineral water for cup and bottle products from January 2011-April 2013, and the price of packaging materials . Then, data is processed to obtain the minimum inventory cost by using a phased approach and the simultaneous approach (using the software LINGO 11.0) for inventory model that considers safety stock and inventory model without considering the safety stock.Results of this research obtained an integrated inventory model between products and packaging materials that considering safety stock and without considering safety stock in PT Indomex Dwijaya Lestari. Based on the calculation, the result is valid. The proposed inventory costs are cheaper than the company's current inventory costs. The cost of the company's current inventory is Rp. 15.020.370,09 considering safety stock per month . Inventory costs in the company without considering safety stock is Rp 13.651.301,74 per month. The cost of inventory using gradual approach is Rp. 4.328.441,38 per month considering safety stock and Rp. 2.745.085,15 per month without considering safety stock. The cost of inventory using the simultaneous approach is Rp. 3.543.637,00 per month considering safety stock and Rp. 3.543.637,00 per month without considering safety stock.

Background: The costs incurred in the provision of products and services across the supply chain are on the rise in many industries, including the mobile phone industry. Despite this, there is limited information in South Africa on the perceptions of supply chain players regarding cost reduction in the mobile phone industry. Furthermore, there is currently no framework for reducing supply chain costs in the South African mobile phone industry.Aim: The purpose of this study is to explore supply chain costs in the South African mobile phone industry, and to develop a supply chain cost-reduction framework for the South African mobile phone industry.Setting: This study explores supply chain costs in four mobile phone companies operating in the South African mobile phone industry, of which three mobile network operators and one mobile retailing group. It uses semi-structured interview data collected in 2011.Method: This study adopted a qualitative case study design to understand supply chain costs and develop a supply chain cost-reduction framework for the South African mobile phone industry. Eight semi-structured interviews with managers of mobile phone companies were conducted. The data were analysed with the help of Atlas.ti, using an adapted three-phased analytical framework as suggested by Miles and Huberman (1994) and O’ Dwyer (2004).Results: The study found that consolidation of strategic relationships through collaboration and strategic alliances between MNOs and other supply chain players is one of the ways to drive costs down across the supply chain. Outsourcing of some of the support activities and retailers’ direct purchasing transactions from device manufacturers were also found to be other avenues for reducing supply chain costs in the industry.Conclusion: The study suggests that mobile network operators (MNOs) need to consolidate their strategic relationships by increasing the share of the network infrastructure, and emphasising the need to strive for operational efficiencies. This combined effort should result in significant cost reductions across the supply chain. The findings of this study provided some avenues that managers of mobile-phone companies could consider to drive costs down supply chain-wide and service end-users at lower rates. The findings of this study could also help regulating authorities to get insights into supply chain cost reduction and develop appropriate mobile phone policies in South Africa.

Analytical insights into two-stage serial line supply chain safety stock

Management Insights

Inventory management is one of the key functions in any supply chain. Since inventory cost occupies a significant portion of supply chain cost, it is essential to employ a good inventory policy in order to reduce the supply chain cost while improving the service level. This paper presents a vendor managed inventory (VMI) policy with emergency orders for a supply chain with a single vendor and two independent retailers. A mathematical model is developed using the concept of demand rate, assuming Poisson demand for the retailers. The formulated model is used to help determine the optimal system base stock level, delivery quantities to retailers and the cycle length such that the total expected inventory cost of the system is minimised. Numerical experiments and sensitivity analysis are then conducted to examine the effect of model parameters on total inventory cost and optimal solution.

Inventory management is one of the key functions in any supply chain. Since inventory cost occupies a significant portion of supply chain cost, it is essential to employ a good inventory policy in order to reduce the supply chain cost while improving the service level. This paper presents a vendor managed inventory (VMI) policy with emergency orders for a supply chain with a single vendor and two independent retailers. A mathematical model is developed using the concept of demand rate, assuming Poisson demand for the retailers. The formulated model is used to help determine the optimal system base stock level, delivery quantities to retailers and the cycle length such that the total expected inventory cost of the system is minimised. Numerical experiments and sensitivity analysis are then conducted to examine the effect of model parameters on total inventory cost and optimal solution.

Purpose. The scientific paper highlights improving the efficiency of export rail transportation of grain cargoes in Ukraine by introducing shipper routing and concentration of loading at the terminal grain elevators. Methodology. According to the experience of the USA and Canada, one of the most effective ways to reduce costs in the grain to-port supply chain is a shipper routing of the rail traffic. Shipper routing for transportation of grain cargoes involves the concentration of their loading on the multiple junctions. The junctions are proposed to be selected with the use of cluster analysis methods. For the formation of the grain loading concentration areas the authors used methods of set theory and multi-criteria optimization. Findings. Based on agglomerative cluster analysis algorithm, the junctions on a network of Ukrainian railways are selected and the areas of possible concentration of grain loading are formed. DSU-algorithm allowed distinguishing the overlapping and non-overlapping areas of concentration. The problem of selecting non-overlapping areas of the grain loading concentration is formalized as the problem of multiobjective integer programming with boolean variables. The solution of this problem by a modified simplex algorithm allows selecting on the railway network of Ukraine 24 districts of possible grain loading concentration, which cover 70 stations and at minimal additional cost provide routing of about 7.5 million tons of grain per year. Originality. The originality of the work lies in the fact that the authors developed the mathematical procedure for selection of junctions and concentration areas of grain loading at the Ukrainian railway network, taking into account the economic efficiency of the process. Practicalvalue. Application of the developed method of grain loading concentration for the formation of unit trains will significantly reduce the logistics costs in the supply chain of grain to Ukrainian ports for export and, consequently, increase its competitiveness in foreign markets.

Product tracing or component tracing? Blockchain adoption in a two-echelon supply chain management

Extending the strategic safety stock placement model to consider tactical production smoothing

Problem definition: We study the bullwhip effect and analyze the impact of human behavior. We separate rational ordering in response to increasing incoming orders from irrational ordering. Academic/practical relevance: Prior research has shown that the bullwhip effect occurs in about two-thirds of firms and impacts profitability by 10%–30%. Most bullwhip mitigation efforts emphasize processes such as information sharing, collaboration, and coordination. Previous work has not been able to separate the impact of behavioral ordering from rational increases in order quantities. Methodology: Using data from a laboratory experiment, we estimate behavioral parameters from three ordering models. We use a simulation to evaluate the cost impact of bullwhip behavior on the supply chain and by echelon. Results: We find that cost increases are not equally shared. Human biases (behavioral ordering) at the retailer results in higher relative costs elsewhere in the supply chain, even as similar ordering by a wholesaler, distributor, or factory results in increased costs within that echelon. These results are consistent regardless of the behavioral models that we consider. The cognitive profile of the decision maker impacts both echelon and supply chain costs. We show that the cost impact is higher as more decision makers enter a supply chain. Managerial implications: The cost of behavioral ordering is not consistent across the supply chain. Managers can use the estimation/simulation framework to analyze the impact of human behavior in their supply chains and evaluate improvement efforts such as coordination or information sharing. Our results show that behavioral ordering by a retailer has an out-sized impact on supply chain costs, which suggests that upstream echelons are better placed to make forecasting and replenishment decisions.

Traditional costing methods with their overemphasis on short term saving in direct manufacturing and operating costs cause to overlook big savings which are not clearly explicit and may not be directly quantified into monetary terms. This causes the project of coordinating and establishing the supply chain fails to come up to expectations. This paper proposed a classification of costs in supply chain by classifying direct visible costs and hidden opportunity costs. It used an idea of the process costing and Activity-based Costing (ABC) by grouping various costs into their cost centers. With the proposed classification of supply chain costs, a company would be able to quantify the hidden benefits and their savings if they choose to join and coordinate in the chain in which these savings would be ignored and overlooked by the traditional costing methods.

SummaryCost management in supply chains currently focuses on the functional level, i.e. the management of activities and transactions causing costs. The institutional level, i.e. the management of the decision makers, is equally crucial for the application of cost management in the supply chain, as its success depends upon the interactions between both the functional and institutional level. This paper presents two concepts for supply chain costing. Activity based supply chain costing provides a cooperative framework for cost management in supply chains. Supply chain target costing may serve either as a cooperative, i.e. trust-based, or a confrontative, i.e. power-based framework. The developed concepts are illustrated with an example from the textile industry.

The fierce competition in today's global business environment forces logistic managers to reduce inventory costs while maintaining a high service level. Placing a right amount of safety stocks along supply chains is necessary in order to maintain the service level from the demand uncertainty. The problem of placing safety stocks is relatively easy in uncapacitated supply chains. Many authors have made some tremendous efforts to solve the safety stock placement problem in uncapacitated supply chains. However, the problem is much more complicated when the capacity constraints come into play. In this paper, a model is developed to describe the nature of safety stock placement problem in capacitated supply chains. The relationships between excess capacities, the variability of demand and the service level are analyzed to gain further understanding to some critical factors in the problem. A solution approach is then proposed to solve the problem based on these relationships