INVENTORY MANAGEMENT

Inventory Management

Inventory Management

Introduction

Supply-chain management (SCM) refers to the management of materials, information, and funds across the entire supply-chain, from suppliers through manufacturing and distribution, to the final consumer. It also includes aftersales service and reverse-product flows such as handling customer returns, recycling of packaging and discarded products. In contrast to multiechelon inventory management, which coordinates inventories at multiple locations of a single firm, or traditional logistics management, SCM involves coordination of information, materials, and financial flows among multiple firms.

Discussion

Two fundamental catalysts have conspired over the past decade to initiate the required change in management theory. The first is the power shift from manufacturers to retailers. Wal-Mart, for instance, has forced many manufacturers to improve their inventory management, and even to manage inventories of their products in Wal-Mart stores and distribution centers. Following Wal-Mart's lead, most major retailers are asking suppliers to tighten up their inventory management and improve their order-fulfillment capabilities. Second, the Internet and associated e-Business initiatives are forcing managers to rethink their supply-chain strategies. e-Business facilitates the virtual supply-chain, and as companies manage these virtual networks, the importance of integration is magnified. Firms like Cisco, HP, and Amazon.com are superb at managing the flow of information and funds, via the Internet and electronic funds transfer. The challenge is to efficiently manage the flow of products.

Today, the forces of globalization and technology are further changing supply-chains. In many cases, the supply-chains are literally disintegrating in a physical sense. Product designers, marketers, and manufacturers that were previously located in a single facility are now spread over several continents in organizations with different cultures, languages, and business objectives. For example, not long ago, apparel brands such as Levi's did it all—operating their own U.S. production plants along with their core design and marketing activities. In the past few years, the company has shuttered the sewing plants that once dotted the southeastern United States and outsourced much of that production and even design. The same transition is also true for many other products, from PCs to lawn mowers. Ten years ago, Hewlett-Packard designed and manufactured PCs for regional markets in Europe and the United States. Now, designers, marketers, and assemblers are scattered across different geographies and firms.

These changes have brought new risks and challenges. Long-standing challenges, such as short product lives and uncertain demand, have become even more vexing. In some cases, the technologies and approaches for enhancing supply-chain competitiveness have been the subject corporate and public debate: supply-chain complexity leading to new risks of disruption; supply-chain efficiency generating complaints of price discrimination; low-cost sourcing creating job migration. Lean supply-chains reduce inventory cost but are more susceptible to such shocks as natural disasters or global pandemics; technologies that enable sophisticated pricing improve supply-chain efficiency but leave some customers crying foul; and outsourcing creates global winners and losers as shifting jobs leave some without work (Johnson, 2006).

Key Components of Supply-Chain Management

Supply-chain management is really a whole set of topics covering multiple disciplines and employing many management and engineering tools (Johnson & Pyke, ...