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A Supply Chain includes all activities that assist in fulfilling the customer demands and requests .These activities are associated with the flow and transformation of goods from the raw materials stage, through to the delivery of the product to the end user, as well as the associated information and funds flows. There are four stages in a supply chain: the supply network, the internal supply chain (which are manufacturing plants), distribution systems, and the end users. Moving up and down the stages are the four flows: material flow, service flow, information flow and funds flow. E-procurement links the supply network and manufacturing plant, e-distribution links the manufacturing plant and the distribution network, and e-commerce links the distribution network and the end users (Ling li 2007). Supply Chain Management is a set of synchronized decisions and activities utilized to efficiently integrate suppliers, manufacturers, warehouses, transporters, retailers, and customers so that the right product or service is distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying customer service level requirements. The objective of Supply Chain Management (SCM) is to achieve sustainable competitive advantage (Ling Li 2007).
Supply chain management is the integration of key business process from the end users through original suppliers that provide products, services, and information that add value for customers and other stake holders (Douglas Lambert 1998).Supply chain management involves the management of the whole process of supplying raw materials from the suppliers to customers of different levels until the product reaches the end user as a complete product. It involves suppliers, production plants, wholesale dealers and supermarkets despite of the class of products being manufactured in the plant. Supply chain also involves flow of information and money apart from the flow of goods from suppliers to producers to stores and to end users. So the supply chain should be intended in such a way that it endures rapid changes in the product market and manages to realize the effectiveness or efficiency in presenting the product into the market. It should also include plans that satisfy both higher end customers and lower end suppliers and act as a favorable chain of product development and should endeavor for constant improvement in the product market.According to Zokaei and Simons (2006), the effectiveness of a supply chain is usually measured in terms of satisfying the consumer expectations and the efficiency is measured by comparing the inputs and the outputs of the product market. The performance of a supply chain depends on the service level of the suppliers at different levels, so it is important that a common framework is developed for analyzing the service levels of the suppliers at each level of supply chain. It is very important to have healthy and sound levels of information flow at all levels of the supply chain in order to achieve the optimal effectiveness and efficiency levels of the supply chain. According to Cachon and Fisher (2000) the supply chain expenses is reduced by 2.2% by the developed value shared data communication or other information strategies, when compared with those of conventional information flow plans. Leveling of the information sharing across the supply chain could be achieved by using advanced information technology thereby resulting in increase of the revenue or in reducing cost in the whole supply chain.
Overview of inventory management:
Inventory is one of the most visible and tangible aspects of carrying out business. Raw materials, goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise, merchandise stocks in a retail store contribute to profits only when their sale puts money into the cash register (http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_mp22.pdf).In a literal sense, inventory refers to stocks of anything which is necessary in carrying out the business. These stocks represent a large portion of the business investment and must be well managed in order to maximize profits and reduce production costs. In fact, many small businesses cannot handle the various types of losses arising from poor inventory management. Unless inventories are controlled, they are unreliable, inefficient and costly (http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_mp22.pdf).
Current manufacturing patterns of many companies demand high productivity and the company's capability to counter unstable market settings. For most of the organizations, high competition has led ways to optimize the manufacturing processes and structure their own inventory management plans correspondingly. Inventory management manages the parts or stocks of materials in any form inside the plant and alleviating the flow of materials in an effortless way considering the variability in demand of the product. Inventory is an activity which involves purchases of goods and the management of such inventory to survive the market demand is known as inventory management (Monczka et al., 2002; Handfield, 2002). Inventory plans should be structured in such a way that they hold variability in demand especially when the company deals mainly with multiple products. Inventory management starts from the procurement of materials from the suppliers for manufacturing or processing until it reaches the customer as a finished product. Even the stocked up finished products are to be managed inside the facility along with the unprocessed or unfinished materials. So an overall plan has to be framed to consider all materials to be stocked up carefully inside the facility. This means that dell waits for the customer to place the order and then the process the purchasing order to the inventory (Jacobs,2003; Murphy, 2003; Richardson, 2003). Inventory management plans will lead to categorizing of various parts that comprise to a complete product and helps in deciding the amount of inventory for each part that is stocked at any given time. Inventory management also assists a plant to decide the discharge and the dates when to order raw materials and finished parts weighing up the demand of the product and allocation of suitable space for stocking up of materials inside the available facility.
INVENTORY MANAGEMENT IN SUPPLY CHAIN ENVIRONMENT
Researches in Supply Chain Inventory Management (SCIM)
Most of the researches in supply chain areas are more concerned about optimizing the supply chain in terms of its efficiency and effectiveness in the product market, but only limited studies are done by experts considering the role of inventory management in supply chains. Effective inventory management in a supply chain plays a vital role in cutting down inventory holding costs across the different stages of the supply chain to a large extent, thus accentuating the need of a general model for managing inventories within a supply chain. Baganha and Cohen (1996) developed an alleviate model for effective and efficient inventory management for supply chains of plants. Supply chain management methods could be made bit complex considering a multi product set-up and discontinuous supply chains. So the models developed by plants should have room for all kinds of supply chain variability. Lee and Billington (1993) developed a model for inventory management considering decentralized supply chains of various plants.
Significance of Information flow in Supply Chain Inventory Management (SCIM)
Only when the information flow from top to bottom of a supply chain is rationalized, the inventory management for supply chains could be more effective and successful. Cachon and Fisher (2000) developed a value shared information model and performed a relative study with the conventional data sharing strategies and ended up with the anticipated model performing better when compared to the other models, therefore reducing inventory holding expenses. Strategic plans for the effective distribution of information are important for supplying goods to the customer at their expected rate. Mutual sharing and analyzing the information and standards between the supplier and customer at every stage of the supply chain is very critical and it also helps in enhancing customer and supplier relationships. Thus integrating that information flow standards in inventory management in a supply chain will certainly result in increased returns.
INVENTORY MANAGEMENT IN DISCONTINUOUS SUPPLY CHAINS:
Supply chains can be rationalized in such a way that they can be continuous and they follow the chain of activities at any point of given time. But in some cases supply chains appear to be in a broken or discontinuous form due to lack of communication flow and other such practical factors that tend to limit them from following the supply chain policy. So in such cases of supply chains it is very complicated to assess the inventory management strategies. According to Lee and Billington, (1993), Materials stored at various positions of supply chain can have deviating effects on the cost and service levels of the chain. So managing inventories in such supply chains usually requires special attention and considerations at all levels.
SUCCESSFUL INVENTORY MANAGEMENT
Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Many small business owners fail to appreciate fully the true costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager's only concern(http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_mp22.pdf). Others include:
Maintaining a wide collection of stock, but not spreading the rapidly moving ones too easily;
Increasing inventory turnover - without compromising on the service level;
Keeping stock low - but not sacrificing service or performance.
Obtaining lower prices by making volume purchases -- but not ending up with slow-moving inventory; and
Having an adequate inventory on hand - but not getting caught with outdated items.
TIPS FOR BETTER INVENTORY MANAGEMENT
At time of delivery
Verify count - Make sure you are receiving as many cartons as are listed on the delivery receipt.
Carefully examine each carton for visible damage - If damage is visible, note it on the delivery receipt and have the driver sign your copy.
After delivery, immediately open all cartons and inspect for merchandise damage.
When damage is discovered
Retain damaged items - All damaged materials must be held at the point received.
Call carrier to report damage and request inspection of the damaged cartons.
Confirm call in writing-This is not mandatory but it is one way to protect you from any legal issues.
Carrier inspection of damaged items
Have all damaged items in the receiving area - Make sure that the damaged items have not moved from the receiving area before the inspection is done by carrier/inspector.
After carrier/inspector prepares damage report, carefully read before signing to avoid problems.
DEVELOPING A FRAMEWORK FOR SCIM
It is very important to ponder on the inventory levels at each stage of supply chain deliberating the variability in product demand, product variety and the supplier performances. Certain key performance measures can be targeted for building a common model for inventory management in a supply chain, also periodical assessments should be performed as a part of continuous improvement activities of the supply chain. Supply chain performance can be measured by examining the following factors,
Quality standards of the suppliers.
Product variety pooled with the suppliers.
Service levels of the suppliers at every level of the supply chain.
Price levels of materials received from each supplier.
Existing inventory management strategies of the suppliers.
Inventory level or inventory holding capacity of all the suppliers.
Available technology interface for linking of suppliers and customers.
Information transfer policies in a supply chain.
History of the supplier delivery before due dates.
Ability to assimilate customer values into supply chain procedures.
Steps involved in developing a framework for effective SCIM
Study the supply chain in terms of its efficiency and suppleness in processing product variety.
Categorize suppliers with respect to the product type, service levels and isolate the chain to various levels.
Assess the inventory holding costs incurred at level of supply chain.
Develop/ adapt existing plans for a steady level of inventory in a supply chain considering the demand variability and also by enhancing the information flow and reorganize the existing inventory plans with stabilized ones.
Perform an inventory cost analysis for the existing and the developed inventory management strategies.
If the cost of the proposed plan is less then ensue with the new strategy else go to step 4.
Incorporate customer values into the supply chains.
Endeavor for continuous improvement at every stage of the supply chain.
According to Hopp and Spearman (2000) inventories are categorized into raw materials, work in progress, finished goods and spare parts. So inventory management in a supply chain has to look on to all inventories that are distributed in a product supply chain of the plant. Just in time (JIT) concepts can be applied in a supply chain to achieve minimum levels of inventory at the same time satisfying the market demand for the product. In order to develop an efficient supply chain one of the most important aspect is attaining good customer-supplier relationships by conducting programs that unite the two ends of the supply chain. Policies should be developed in such way that they assist both customer and suppliers in all possible ways. Inventory management training and knowledge sharing are more important and should be a part of the supply chain enrichment and enhancement programs. For handling the market ebb and flow, periodical market and supplier's assessment are necessary.
Supply chain inventory management is very analytical for planning or predicting for the future needs and for developing strategic plans to handle the market situations. It needs a top down approach to structure an effective way of tackling inventory managing problems in supply chains. A common structure considering all critical factors that drive inventory management could be a better solution for solving the inventory problems in supply chains in spite of the type of manufacturing industry being scrutinized.
Monczka, R.M., Trent, R.J. and Handfield, R.B. (2002), Purchasing and Supply Chain Management, 2nd ed., South-Western, Cincinnati, OH.
Murphy, C. (2003), "Imagining what's possible", InformationWeek, pp. 52-6.
Jacobs, D.G. (2003), "Anatomy of a supply chain", Logisticstoday, Vol. 44 No. 6, pp. 60-2.
Richardson, H.L. (2003), "High-tech cost cutting, electronics manufacturers trim the fat", World Trade, Vol. 16 No. 7, pp. 32-5.
Zokaei, A. K., Simons, D. W. (2006). Value chain analysis in consumer focus improvement: A case study of the UK red meat industry. The International Journal of Logistics Management. 17(2), 141-162.
Cachon, G. P. and Fisher, M. (2000). Supply chain inventory management and the value of shared information. Operations Research. 46(8), 1032-1048.
Lee, H. L., and Billington, C. (1993). Material management in decentralized supply chains. Management Science, 41(5), 835-847.
Baganha, M. P. and Cohen, M. A. (1998). The stabilizing effect of inventory in supply chains. Operations Research, 46(3), S72-S83.
Ling Li (Old Dominion University, USA) June 2007 SUPPLY CHAIN MANAGEMENT: CONCEPTS, TECHNIQUES AND PRACTICES Enhancing Value Through Collaboration
<http://archive.sba.gov/idc/groups/public/documents/sba_homepage/pub_mp22.pdf Accessed on 2011-05-03>
Hopp, W. J. and Spearman, M. L. (2000). Factory Physics. Boston: McGraw-Hill/Irwin