A Study on Inventory System

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A study on inventory replenishment policies in a two-echelon supply chain system [pic]

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H.T. Leea, [pic], [pic]and J.C. Wub
aDepartment of Business Administration, National Taipei University, 151, University Rd., San Shia, Taipei, 237 Taiwan, ROC bInstitute of Business and Management, Lunghwa University of Science and Technology, 300 Wan-shou Road, Section 1, Kueishan, Taoyuan, Taiwan, ROC

Available online 7 September 2006.

Abstract
Inventory control plays an important role in supply chain management. Properly controlled inventory can satisfy customers’ demands, smooth the production plans, and reduce the operation costs; yet failing to budget the inventory expenses may lead to serious consequences. The bullwhip effect, observed in many supply chain management cases, causes excessive inventory due to information distortion, i.e. the order amount is exaggerated while a minor demand variation occurs, and the information amplified dramatically as the supply chain moves to the upstream. In this paper, one of the main causes of bullwhip effect, order batching, is considered. A simplified two-echelon supply chain system, with one supplier and one retailer that can choose different replenishment policies, is used as a demonstration. Two types of inventory replenishment methods are considered: the traditional methods (the event-triggered and the time-triggered ordering policies), and the statistical process control (SPC) based replenishment method. The results show that the latter outperforms the traditional method in the categories of inventory variation, and in the number of backlog when the fill-rate of the prior model is set to be 99%. This research provides a different approach to inventory cost-down other than the common methods like: information sharing, order batch cutting, and lead time reduction. By choosing...
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