Management and inventory management strategy - Integrated Supply Chain Planning

Inventory management and allocation strategy

To date, three main types of inventory management strategies are widely known.

1. The most careful strategy. In accordance with this strategy, the size of the required stock is defined as the product of the maximum consumption of stocks (for any position) within one day for the longest period of delivery available from the issued enterprise orders. As a result, reserves are created that can not be fully utilized by the time the new order is placed for replenishment.

2. Additional reserve strategy. The guarantee of requirements is provided in this case by creating an additional reserve of material resources, which can be determined in one of the following ways:

• the size of the reserve is set equal to the average demand multiplied by the reliability factor, the value of which is usually taken to be 1.25-1.40;

• The reserve number of units of storage is defined as an indicator equal to the square root of the average consumption in the period corresponding to the lead time.

3. The strategy of the percentage of demand. This strategy is based on the analysis of the frequency of demand for inventories based on the results of work for one day. Data on the amount of demand are recorded in the schedule of distribution of products cumulatively. Then, the part of the total number of the periods for issuing orders is set, for which it is permissible to fully consume the stocks that do not entail a violation of the production process. According to this value, the demand curve corresponding to the established cases of full use of reserves is determined from the specified schedule.

The inventory management strategy data is based primarily on the implementation of known inventory management systems: fixed order size systems, fixed order period systems, systems with a fixed replenishment period to a constant level, and a minimum-maximum system.


Along with the inventory management strategy, it is advisable to introduce the concept of stock allocation strategy, which refers to both the strategy for promoting stocks in the distribution network and the demand and supply management strategy.

There are two basic strategies for promoting stocks: Extraction based on customer demand and ejection based on the forecast. With pulling strategy stocks are almost absent due to the rapid sending of finished products to the customer. There are no surplus stocks, as the size of the lot of finished products is oriented to order. With pull strategy stocks may be more because of:

• untimely production of products;

• untimely dispatch of finished products;

• Orientation of the batch size of finished products for the annual program without taking into account fluctuations in demand.

There are a number of factors influencing the choice of a strategy for placing stocks in a distribution network, among which, in the first place, it should be noted:

1) the lead time for the sales order;

2) the ratio of the lead time of the sales order to the time of the complete cycle of the logistics chain (including production);

3) the stability of the supply chain to fluctuations in demand;

4) the ability of the supply chain to take into account the individuality of the sales order. When choosing a strategy for placing stocks in the distribution network, you should also take into account the total costs associated with the creation and promotion of stocks. These costs are maximized in cases of storage of finished goods stocks near customers and production at the warehouse, reduced in cases of configuration to order, assembly to order and production on request and are almost equal to zero in case of design for order and piece production.

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