Supply Chain Inventory Management Problems Analysis Essay

I. Introduction

Warehouses are an important part of logistics centers, and for the materials that are used on a recurring basis, the material department purchases and warehouses the materials in accordance with the principles of economic inventory management. Traditional inventory management mainly focuses on internal inventory control, it is often to optimize the total cost of inventory of a single enterprise as the goal of determining the economic order quantity and order point, do not pay attention to the coordination and cooperation of the supply chain. This local optimization management mode leads to poor supply chain logistics, increased costs, and lack of competitiveness of the enterprise and its supply chain. Supply chain management theory gives a new connotation to inventory management, which emphasizes the overall supply chain and looks at the inventory problem from a systematic perspective, which makes the inventory management in the supply chain environment have many differences with the traditional inventory management. Close cooperation between business organizations in the supply chain in terms of inventory and material flow will bring many benefits to each organization. Not only can they improve planning accuracy and resource productivity, they can also improve the speed of material flow and provide better customer service.

Overview of Supply Chain Inventory Management

This section provides an overview of the basic concepts and core ideas of supply chain management, and analyzes the concepts and development of inventory management.

1. Overview of supply chain management. SupplyChainManagement (SupplyChainManagement, SCM) was first proposed by Michael Porter in the book "Competitive Advantage" published in 1980.In 1986, the Council of Logistics Management (CouncilofLogisticsManagement, CLM) made a definition of SCM: SCM is A kind of logistics management about customers and suppliers outside the enterprise. After years of research and practice, the definition of supply chain management has not been unified, but its basic role and conceptual framework has been recognized. In various fields such as marketing, economics, operations research, management science, operation management and logistics, a large number of related researches on supply chain management have been carried out in different facets. First of all, it is the main body of the supply chain, i.e. the members of the supply chain: from the functional point of view, all the members of the supply chain can be suppliers, manufacturers, retailers, third-party logistics companies and retailers, etc.; in terms of the transaction relationship, the members can be the buyer, the seller and the transportation undertaker; from the point of view of the power or the status of the supply chain as a whole, it can be divided into the leader and the follower, and the power is mainly embodied in the following aspects control, such as inventory decisions, pricing, promotional activities capacity allocation, the use of information technology and **** enjoyment. Next is the channel. Channels are the means by which products, information and money flow, and they connect all members of the supply chain. The structure of the channel includes the shape of the connections between the various members, such as how many contractors, distribution centers, and their geographic locations. Finally, there is the product. In a supply chain management research model, a variety of products may be involved, the relationship between these products can be alternative, complementary, and the relationship between the upper and lower generations of the same brand product line is more complex, and each other will affect each other's production, inventory, pricing, and promotional decisions, etc. In addition, if the product's lifecycle is divided into several periods, in each period of time, the demand, price inventory, and promotional efforts In addition, if the product life cycle is divided into several periods, the demand, price inventory and promotional efforts in each period will affect the decision-making in other periods.

2. Overview of inventory management. Inventory management is a classic problem in the field of logistics and supply chain management, and its study can be traced back to the late 19th century to study the problem of how much cash banks keep in circulation. Through research, people found a simple formula for calculating cash on hand.In 1915, Harris applied this idea to the general problem of material storage, and established the classic Economic Order Quantity (EconomicOrderQuantity, EOQ) formula. Into the 1990s, the global market competition is more intense, logistics and warehousing costs have increased, enterprises are faced with cost reduction, quality improvement, improve productivity and customer service level of the great challenge, the supply chain of various business organizations increasingly recognize that the ability to meet the demand of the final customer depends on the coordination and cooperation of the entire supply chain. As Kristof said in 1996, "Today's business competition is really a competition between supply chains, not between companies." Any uncertainty in the supply chain will cause the various business organizations in the chain to hold higher levels of inventory to ensure their ability to respond to demand. Higher levels of inventory will inevitably lead to higher costs and will also slow down the supply chain's response to react to changes, therefore, scientific inventory control becomes the primary means of carrying out inventory management. The theory of supply chain management gives new connotation to inventory management, which emphasizes the overall supply chain and looks at the inventory problem from a systematic perspective, which makes the inventory management in the supply chain environment have many differences with the traditional inventory management. In supply chain management, purchasing cost, transportation cost, inventory cost, manufacturing cost and other costs are all interconnected, therefore, in order to realize effective supply chain logistics management, it is necessary to consider each member enterprise of the supply chain as an organic whole, and make the physical supply logistics, manufacturing assembly logistics and physical distribution logistics to achieve a high degree of balance. In the realization of the supply chain logistics management objectives at the same time, so that the entire supply chain inventory control at the lowest level, the total inventory minimization goals rely on the realization of the entire supply chain inventory levels and inventory changes in the optimal control, rather than a single member of the enterprise inventory level of the lowest. Close cooperation between business organizations in the supply chain in terms of inventory and material flow will bring many benefits to each organization. First, lower inventory levels will result in fewer expedited operations, improved planning accuracy and resource productivity, and better returns on scale; second, collaboration on inventory and material flow will result in faster, more reliable material flow, shorter lead times, and better customer service due to faster deliveries. Business organizations of all kinds are constantly looking for ways to improve their operations as a way to gain a competitive advantage.

3. Supply chain inventory management characteristics and implications. Traditional enterprise inventory management focuses on optimizing the cost of a single inventory, determining the economic order quantity and order point from the storage cost and ordering cost. Inventory management in the supply chain not only involves multiple departments within the enterprise, but also involves multiple other enterprises externally, it is the functional management from the internal departments of the enterprise to expand to the inventory management between groups of enterprises. Inventory management in the supply chain environment has many differences with traditional enterprise inventory management, which are mainly reflected in the performance evaluation index of management, the starting point of management, the ideas and methods of management and so on. In a nutshell, inventory management in the supply chain management environment has the following characteristics:

3.1 Inventory management in the supply chain management environment aims to pursue the optimization of the global inventory of the supply chain by the totality of the supply chain and the systemic nature of the supply chain can be seen, the supply chain management pursues the overall interests of the entire supply chain. Therefore, inventory management is not only to pursue the lowest cost of individual inventory points of each node enterprise, but should coordinate the inventory activities of each node enterprise to minimize the inventory cost of the entire supply chain.

3.2 Information ****sharing provides a strong support means for supply chain inventory control The development of modern information technology makes supply chain inventory control more effective. To increase the degree of information *** enjoyment of the supply chain, the global supply chain information system established on the basis of the Internet and EDI technology provides a guarantee for rapid information transfer between enterprises. Supply chain inventory coordination mechanism determines the efficiency of inventory collaboration between enterprises, is the core issue in supply chain management. A good inventory coordination mechanism can mobilize the enthusiasm of cooperative enterprises as well as realize the overall interests of the supply chain, which can maximize the comprehensive competitiveness of the supply chain. With the development of economy, the market changes from local scale to global scale, and the regional economy, which is confined to a narrow region due to high information cost, will be unified into the global market. The study of supply chain management is of great theoretical and practical significance for China's enterprises to change their operation mechanism and management mode, improve their ability to adapt to the internationalization business strategy, and enhance their survival and competition in the international market. As the core issue of supply chain research inventory management research will appear more prominent, this area will become more valuable and more practical significance of the research direction.

Three, using the supply chain to coordinate inventory

Coordinated supply chain relationships can cope with uncertain changes in demand, reduce inventory costs, improve return on assets and other functions. However, a supply chain system includes multiple business organizations, which are often independent economic entities, suppliers and retailers in the production and inventory decisions taken by the EOQ model tends to maximize their own interests, while ignoring the overall interests of the entire supply chain, the key to supply chain management is to establish a coordinating mechanism to supply chain members of the objectives of the synthesis, coordination of their decisions to optimize the performance of the system. Supply chain coordination involves different coordination issues, such as cooperation and coordination of supply chain members in strategy, production coordination, information coordination and inventory coordination in planning and operation. Different coordination models are often needed for different coordination contents in each coordination problem, such as the production coordination problem, which mainly studies the global supply chain oriented production planning, logistics planning, etc. The former mainly adopts the method of establishing production scheduling model, while the latter mainly adopts the method of establishing distribution model. The information coordination problem includes the coordination of the following information contents: inventory***sharing, sales data***sharing, order status***sharing, sales forecast***sharing, production/distribution plan***sharing. Inventory coordination models established for the inventory coordination problem mainly include supplier-managed inventory in supply chain management, consignment inventory management, joint inventory model and third-party inventory management, etc., which aim to overcome the phenomenon of demand amplification in the supply chain system due to the mutually independent inventory control model of each node enterprise.

1. Vendor Managed Inventory (VMI). VMI management system means that the supply vendor manages the user's inventory (VendorManagedInventory), which is one of the ways of continuous replenishment. The so-called "continuous replenishment" is a partnership between the supplier and the retailer, both *** enjoy the retailer's inventory data and sales information and the current stock level, the supplier based on these data and information and then based on the pre-established stock level of the process of replenishment to the retailer. In a continuous replenishment environment, the supplier no longer passively executes the retailer's orders, but actively replenishes the retailer's stock or makes suggested orders to reduce replenishment costs, improve delivery speed and accuracy, and reduce inventory levels. In the supply chain environment, the increase in user demand for personalized products leads to an increase in the variety of products in the enterprise, and the diversification and serialization of products leads to a rise in inventory levels and an increase in inventory costs and management difficulties. Traditional inventory management causes inventory backlogs in the supply chain and cuts the overall benefits of the supply chain. In this case, new inventory management methods are required to manage inventory scientifically and coordinate the overall interests of the supply chain. Supplier management of inventory objectively requires the enterprises to cooperate closely on the basis of mutual trust, to achieve the same goal in the concept, and to make clear their respective responsibilities and obligations; requires the enterprises to take a positive response attitude in cooperation, to reduce the cost of inventory with a rapid response ability, so that the benefits obtained when the parties involved in cooperation than not involved in the cooperation of the gains, so that the emergence of the supplier management of inventory is inevitable!

2. Consignment inventory management. ConsignmentStock (ConsignmentStock, CS) is a theory of inventory management in the supply chain environment, it refers to the supplier will store the goods in the manufacturer or retailer's warehouse, in the goods have not been used by the manufacturer or retailer before the ownership of the goods owned by the supplier, the manufacturer or retailer only in the use of the goods only when the cost of payment. since the 1990s. With the development of computer networks, information, communication and other technologies, the world has entered the network era with the Internet as the carrier. The exchange of information within and between enterprises in the network era is extremely convenient, which creates conditions for the application and promotion of the CS method premised on continuous information exchange. On the other hand, as the world enters a buyer's market, the channel power of the market gradually shifts to the downstream of the supply chain. In order to reduce the risk, the manufacturers in the downstream of the supply chain can fully rely on their own channel power to let the suppliers adopt CS, which is more favorable to their own inventory methods. In reality, CS is very common and widely used in various industries. For example, many manufacturers (IBM, Dell, Philip, Haier, Changhong, etc.) require suppliers to produce parts and components, raw materials, etc., stored in their own warehouses, and then check out with the supplier after use; many hotels store a variety of beverages in the room, food, tobacco and alcohol, etc., in fact, the application of the application of a CS approach; according to the survey, 90% of hospitals more or less used some form of CS; and even e-commerce sites. According to a survey, 90% of hospitals use some form of CS; even e-commerce sites (e.g., ebay, amazon.com, AmericaOnline, Alibaba, Taobao, eBay, etc.) use a kind of consignment contract; in addition, in the retail industry, although the large supermarkets (e.g., Wal-Mart, etc.) are still only using the VMI method, but some people assert that CS represents the future of the retail industry.

3. Joint inventory management. Although VMI has proven to be an effective inventory management program, the level of collaboration between suppliers and retailers in VMI is limited, and successful VMI requires a high level of trust between companies. Downstream companies only need to help upstream companies to develop plans so that the downstream companies can realize zero inventory and the upstream companies can reduce their inventory dramatically, but this undoubtedly increases the risk for suppliers. Different from the decision-making agent mode of VMI integrated operation, JointlyManagedInventory (JMI) is a risk-sharing inventory management mode, in simple terms, JMI is a joint inventory management mode based on the coordination center. Joint inventory management is an effective method to solve the demand amplification phenomenon caused by independent inventory mode in the supply chain system, greatly improve the supply level and operational efficiency of the supply chain, and improve the degree of synchronization of the supply chain, and it is a kind of inventory management mode that improves the degree of synchronization of the supply chain and risk sharing through the mechanism of joint and coordination among the supply chain members. Joint inventory management emphasizes the simultaneous participation of each node enterprise, *** with the development of inventory plans, so that each inventory manager in the supply chain from each other's coordination considerations, to maintain the supply chain between the two adjacent nodes of the inventory manager to maintain consistent expectations of the demand, eliminating the phenomenon of demand variability amplification, so as to make full use of the supply chain resources. In the supply chain environment, the implementation of joint inventory management, first of all, an effective coordination management mechanism. In the coordination management mechanism, the establishment of supply and demand *** with the same cooperation goals, on the basis of which the establishment of joint inventory coordination and control mechanism, by the joint inventory management center on demand, ordering, supply and other decisions, and coordination of supply and demand interests, while the need to set up a fair distribution of benefits and incentive mechanisms. Secondly, it is necessary to rely on modern information systems, make full use of the supply chain node enterprise EDI (Electronic Data Interchange ElectronicDataInterchange) platform or e-commerce system, bar code technology, POS system, order automatic processing system and so on integration. In the information system, to do information **** enjoy and information access with transparency and timeliness. JMI can give the enterprise inventory management advantages are described below:

(1) information advantage. Information is an important resource for enterprises, and the lack of information communication is also the main reason for other inventory management problems. JMI realizes the information ****sharing of inventory management between enterprises by establishing a strategic partnership between upstream and downstream enterprises. This not only ensures that the upstream enterprises in the supply chain can obtain timely and accurate market demand information through the downstream enterprises, but also can make all the activities of each enterprise are centered on the changes in customer demand.

(2) Cost advantage: JMI realizes the integration of inventory management from distributors to manufacturers to suppliers, which enables all three parties to realize just-in-time purchasing (i.e., purchasing the right items in the right quantity and quality at the right time and in the right place). Just-in-time purchasing not only reduces inventory, but also accelerates inventory turnover, shortens lead time for ordering and delivery, and thus reduces the cost of purchasing for the enterprise.

(3) logistics advantages. JMI breaks the traditional fragmented inventory management situation, reflecting the integration of the supply chain management ideas. JMI emphasizes the simultaneous participation of all parties, *** with the development of inventory planning, *** with the sharing of risk, can effectively eliminate the high inventory and the "bullwhip effect".

(4) strategic alliance advantage. JMI implementation is based on the full trust and cooperation of all parties to carry out, JMI to run smoothly and effectively, for distributors, manufacturers and suppliers are indispensable, we are standing in the same boat. Therefore, the effective implementation of JMI, not only to strengthen the link between the enterprise and cooperation, but also to ensure that this unique by the inventory management and brought about by the cooperation between the enterprise mode will not be easily imitated by the competitors, for the enterprise to bring competitive advantage.

Overall, joint inventory management is an effective way to address the phenomenon of demand amplification in the supply chain system due to the mutually independent inventory operation modes of the node enterprises, and to improve the degree of synchronization in the supply chain. It emphasizes the simultaneous participation of both parties, *** with the development of inventory plans, so that each inventory manager in the supply chain process (suppliers, manufacturers, distributors) from each other's coordination considerations, to maintain the supply chain between two adjacent nodes of the inventory manager's expectations of the demand to maintain consistency, so as to eliminate the phenomenon of demand variability amplification. Any neighboring node demand determination is the result of coordination between supply and demand, inventory management is no longer a separate and independent operation process, but into the supply and demand connection of the link and coordination.

IV. Model

1. Model assumptions. (1) There is only a single buyer (her) and a single seller (him) in the supply chain, and only one product is produced. (2) The buyer's ordering is done in batches, her lot size per order is Q, the cost per order is A, and the annual rate of demand for the product is deterministic, D. (3) The seller has a finite rate of production and also does so in batches, he produces mQ batches per production, the start-up (set-up) cost per production is M, and the rate of production of the product is also deterministic, P. (4) The inventory holding cost of both buyer and seller are related to the number of products in stock, the cost of inventory holding is related to the number of products in stock, and the inventory holding cost of each product is related to the number of products in stock. Inventory holding costs are proportional to the number of products in stock and time, so that the inventory holding costs per unit of product per unit of time for the buyer and seller are hb and hv, respectively.(5) The cost of transportation per unit is a constant and is not considered.

2. Storage strategy. (1) t-cycle strategy: replenish every t time period, the replenishment amount is Q. (2) (s,Q) strategy: continuous inventory, once the inventory level is less than s, immediately issue a purchase order, its order quantity is Q; if the inventory level is greater than or equal to s, then do not order. s is called the inventory level of the ordering point. (3) (s,S) strategy: continuous inventory, once the inventory level is less than s, the order is issued immediately, the order quantity is S-s; even if the inventory level at the moment of ordering reaches S otherwise it is not ordered. (4) (T,s,Q) strategy: take inventory with period T, the rest of the behavior is the same as (s,Q) strategy. (5) (T,s,S) strategy: to cycle T inventory, the rest of the behavior with (s,S) strategy.

3. Traditional inventory model. Traditional inventory management tends to optimize the total cost of inventory for a single enterprise to determine the economic order quantity and order point, so here we take the buyer as an example to give the economic order quantity (EOQ) formula.

4. Reorder level. Under the condition of constant demand, it does not make sense to move stock from one inventory cycle to another, each order should arrive when the existing stock is just about exhausted, in order to do this, it should be in the need to replenish the goods before the implementation of an order-to-delivery cycle to order goods, otherwise stock-outs will occur.

5. Integrated inventory model. Integrated inventory model takes into account the total cost of the supply chain system to minimize the joint economic batch size, breaking the traditional fragmented inventory management model, reflecting the integrated management of the supply chain ideas. A joint economic lot solution model (Hill (1999)) that minimizes the total cost of a supply chain system consisting of a single buyer and a single seller is given below.

V. Conclusion

The direction of development of modern logistics is modernization, systematization, rationalization and efficiency, any enterprise can not avoid the question of how to be its logistics system or logistics subsidiaries to run optimally. In order to achieve effective supply chain logistics management, each member of the supply chain must be considered as an organic whole, centralized management of inventory information, the establishment of material accounts through the ERP information platform, to achieve a high degree of transparency of inventory. Gradually use supplier management inventory, supplier agreement inventory and other strategies, which is conducive to reducing inventory costs and improving enterprise competitiveness. As we all know, supply chain as a kind of extended enterprise, inventory management is more important in its operation, the reason is that inventory not only affects the cost of a node enterprise, but also restricts the comprehensive cost, overall performance and competitive advantage of the supply chain. Therefore, enterprises should consider their inventory management strategies more from the perspective of cooperative relationship among enterprises in the supply chain, so as to promote the evolution of supply chain inventory management ideas and methods, and ultimately improve the effectiveness of inventory management of the whole supply chain. Although the relevant theories and coordination methods of supplier-managed inventory have been relatively mature, there are still many problems, such as the information technology platform, trust mechanism, and strategy for the implementation of supplier-managed inventory have to be further researched; the coordination of supplier-managed inventory in different situations deserves further research; the coordination mechanism of supplier-managed inventory has to be further expanded, and the empirical research of the coordination mechanism has to be further enriched; The systematic research on supplier-managed inventory and procurement, production, sales and transportation needs to be strengthened. This paper discusses the basic concepts and related theories of supply chain inventory management, and for the supply chain coordination of inventory, it studies the supply chain management inventory, consignment inventory management, joint inventory management and third-party logistics management of inventory, and based on this, the traditional inventory management model, reordering level and integrated inventory management model, are discussed. Finally, a case study of Seagate's VMI inventory management model is presented, combining theory and practice to demonstrate the science and feasibility of supply chain coordinated inventory.

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