REVIEW OF RESEARCH EFFECTIVE SUPPLY CHAIN MANAGEMENT & INVENTORY OPTIMIZATION

Transcription

1 REVIEW OF RESEARCH EFFECTIVE SUPPLY CHAIN MANAGEMENT & INVENTORY OPTIMIZATION Prof. Utpal Chakravarty Head, Mechanical Engineering Department, JECRC UDML College of Engineering, (India) ABSTRACT Over the period of the last decade and a half, many studies have been done for maximizing the benefits of a manufacturing supply chain in today s world of information technology. The points that have emerged focus on the techniques to be developed for optimization of inventory with a smart flow of information across the supply chain members. The meaning of collaboration in the supply chain needs to be well understood by all players / trading partners of the supply chain as a whole. The management of risks inherent in a supply chain is also an important area that needs deeper knowledge and understanding of the factors that affect the supply chain. The review also covers the researches done for establishing the performance measures of a supply chain and analysis of the benefits, bridges and barriers for effectiveness. The review indicates that further research should aim at improving the competitiveness of the chain in the present global market scenario as also inventory optimization techniques for increasing profitability. Optimization of configuration for new product with respect to effective lead time to cost trade-offs also requires further attention. Keywords Manufacturing supply chain, Inventory optimization, Inherent risks 1. INTRODUCTION The widespread globalization in every sphere of business and trade is affecting the everyday dealings of any organization as well as all individuals. As such it has become almost mandatory for every manufacturing or trading organization to streamline each and every activity being done by them for their own survival in the most competitive scenario prevailing all across the globe. Keeping this picture in mind it was felt as the need of the time that an overall review of the research work done in the field of supply chain and inventory management may be helpful for organizations and other researchers to take advantage of the outcomes. It was observed that considerable research work has been done during the period of last years in the field of supply chain management and inventory optimization with the aim of increasing the overall effectiveness and efficiency of the supply chain. Manufacturing and trading organizations have tried to coordinate and cooperate with the researchers with the goal of improving their profitability by implementing the various techniques developed as a result of the extensive research work done by a number of researchers. The 161 P a g e

2 research and studies done in the field have also shown a pathway for effective inventory management that leads to greater efficiency of the supply chain resulting into improving the bottom line. The extensive development of information technology has supported the widespread flow of information across the upstream and downstream of a supply chain. A lot has been achieved with the help of smooth flow of strategic information towards increased collaboration and mutual understanding between the players of the supply chain. The result of the review of the research work indicates the areas where further research needs to be done and what may be the focus areas. This also highlights the use of information technology for streamlining and advancement of the supply chain and inventory management activities. 2. REVIEW OF THE RESEARCH PAPERS This study was intended to bring out the major points of the research work - in the areas of supply chain management as also inventory management especially applicable to manufacturing and trading organizations - done by various researchers and published by them in a number of journals in the form of papers or articles. A number of published works were studied and the ideas, results and conclusions have been noted down further on - with special mention of the thrust areas as pointed out by the researchers. Atul B. Borade et al. [1] studied the domain of supply chain network of facilities and distribution channels that encompasses the procurement of materials, production, assembly and delivery of the product or service to the customer. They observed that the management of the supply chain and the roles of various actors involved differ from industry to industry and company to company. As a result, supply chain management has become a vital issue for manufacturers, professionals and researchers. However, although researchers and practitioners have developed a sustainable body of knowledge by deploying various qualitative and quantitative tools and techniques - in the field of supply chain management, yet it requires concerted action of all the participants. Moreover, the current trends like outsourcing, information technology adoption and third party logistics presents an opportunity for development of supply chain management. Therefore, establishment of mutual trust within supply chain to share vital information and development of suitable mathematical model for the same would be a great challenge for effective supply chain management practice. Bernard Burnes et al. [2] aimed to develop a research agenda for risk and supply chain management. They professed that there are a number of key debates in the general literature on risk, especially in terms of qualitative versus quantitative approaches which need to be recognized by those seeking to apply risk theory and risk management approaches to supply chains. The authors have proposed a research agenda aimed at developing models of supply chain risk management based on combining the wider theory and practice of risk management with the needs and practices of supply chain management. However, the need for research in the field of supply chain risk should be located within a broader study of risk particularly in the areas of relative study of information available in other disciplines of research as compared to the understanding of risk in the supply chain, how to incorporate key concepts of risk and risk management from 162 P a g e

3 other disciplines into the supply chain arena, what are the implications of the nature of risk for development of tools and framework for supply chain risk management etc. Stefan A. Seuring [3] aimed to assess the current practice in research on supply chain management applying a case study method. He conducted the study on two particular research fields viz. sustainable supply chain management and performance supply chain management and thereby used these as examples. Although, in research on supply chain management, a considerable number of case-based papers have been published but the study conducted by the author does not specify clearly that the clarity in the documentation in such research is an important prerequisite. Also, in such research process, basic information needs to be provided very specifically. Brent D. Williams et al. [4] published the paper with a purpose to provide a review of inventory management articles published in major logistics outlets, identify themes from the literature and provide future direction for inventory management research to be published in logistics journals. They found two major themes to emerge from logistics research focussed on inventory management. First, logistics researchers have focussed considerable attention on integrating traditional logistics decisions such as transportation and warehousing with inventory management decisions using traditional inventory control models. Second, logistics researchers have more recently focussed on examining inventory management through collaborative models. After going through the research study it is observed that one of the further areas for exploration is to focus attention on the understanding of relationships between supply chain partners managing inventory through collaborative programs. Another area that may provide benefit to inventory management is the incorporation of behavioral issues in new and existing models. Benita M. Beamon [5] observed that researchers and practitioners have primarily investigated the various processes within manufacturing supply chains individually. However, recently increasing attention has been placed on the performance, design and analysis of the supply chain as a whole. This attention is largely as a result of the rising costs of manufacturing, the shrinking resources of manufacturing bases, shortened product life cycles, the levelling of playing field within manufacturing, and the globalization of the market economies. However, on review of the research paper, it is felt that further research needs to be done in the areas of (i) evaluation and development of supply chain performance measures, (ii) development of models and procedures to relate decision variables to the performance measures, (iii) consideration of issues affecting supply chain modeling and (iv) classification of supply chain systems to allow development of rules-of-thumb or general techniques to aid in the design and analysis of manufacturing supply chains. Noha Mostafa et al. [6] performed a study on a complex high-value products manufacturer, whose repairable items were both expensive and critical. They concluded that multi-echelon inventory models for repairable items have acquired increased attention due to the increase in international organizations that manage inventories in several locations that in many times can be all over the world. 163 P a g e

4 However, it is observed that the study of the dependence of the failure probability distribution function of the number of parts should also be done. Also, a closer look and attention is needed to be given on the study of the model adaptation to acyclic multi-echelon structure in particular to a supply chain system. Mark Barratt [7] studied the idea of collaboration in the area of supply chain management and observed that collaboration has proved to be difficult to implement. The author marked that there has been an over-reliance on technology in trying to implement collaboration in supply chain management and a failure to understand when and with whom to collaborate which is due fundamentally to a lack of trust between trading partners. Through the study, the author proposed that a supply chain segmentation approach, based on customer buying behaviour and service needs, is the most appropriate context for collaboration. However, although the research work identified a significant number of elements of collaboration, but it is still unclear as to how these elements inter-relate with one another. Also, many of the elements, such as culture, trust, information exchange and supply chain wide performance measures have been, to a large extent, so far been ignored due to their complexity whereas, these elements deserve significant attention individually. Ik-Whan G. Kwon et al. [8] examined the relationship between level of trust and several relevant constructs drawn from transaction cost analysis (such as asset specificity, behavioural uncertainty, and partner s opportunism) and social change theory (informational sharing). They found that a firm s trust in their supply chain partners is highly associated with both parties specific asset investments and social exchange theory. Also, the level of commitment is strongly related to the level of trust. However, the unpredictable behavior of the respondent (a negative impact) and information sharing (a positive impact) heavily impact the level of trust. Hence, these avenues seem to be areas where supply chain implementation is a challenge rather than a barrier that needs to be practiced and developed into the culture and systems of the organizations. It needs no elaboration that open and honest communications are not a privilege in the supply chain rather they are essential requirements in the competitive market. Elzbieta Malyszek et al. [9] proceeded with a purpose to provide a method of reducing inventory costs in multi-product and multi-nodes supply chains. The approach was based on applying the classical inventory control models and simulation. It was a two-stage approach in which inventory cost reduction in the supply chain occurs as a result of the appropriate selection of inventory control policies by its members. Supply chain members can learn which inventory control policies should be applied. Results of the learning process are closely connected with a kind of collaboration between supply chain nodes. However, the approach of the authors does not offer an optimal solution and the approach needs to be tested for more complicated supply chains. They have also not studied the strategy in which the supply chain cells negotiate the level of their inventories. Stephen C. Graves et al. [10] observed that the life cycle of all products is becoming shorter and shorter in all markets. For electronic products, life cycles are measured in units of months with 6 to 12 months life cycles being common. Given these short product life cycles, product demand becomes increasingly difficult to forecast. Moreover, demand is never really stationary because the demand rate evolves over the life of the product. The 164 P a g e

5 authors studied the problem of where in a supply chain to place strategic safety stocks to provide a high level of service to the final customer with minimum cost. They extended their model of stationary demand to the case of non-stationary demand, as might occur for products with short life cycles. Although the authors have put forth the policy based on the constant service time (CST) system, the research may be extended to further exploring the effectiveness of using the CST policy to better understand when it works well and when not. This may provide some insight or guidelines as to when to deviate from the CST policy. John J. Neale et al. [11] worked in the area of non-stationary demand faced by many companies because of short product life cycles, seasonality, and customer buying patterns or other factors. They presented a practical model for managing inventory in a supply chain facing stochastic, non-stationary demand which was based on the guaranteed service modelling framework. However, many of the observations that resulted from the non-stationary demand are counter intuitive which is evident from the fact that it is not immediately known as to whether the safety stock should be a function of the backward looking demand or that the demand forecasts and demand uncertainty propagate differently through a supply chain. This leaves room for further research in the area since much of the information available today are based on the stationary demand and modifications for non-stationary demand management needs to be developed further. Abul Mukid Mohammad Mukaddes et al. [12] studied the information flow in a supply chain for developing an information model for dealing with the accompanying challenges. For countering / controlling these types of challenges, the organizations must embrace the latest information technology, e-business and the internet that allow increasingly better opportunities for assisting with supply chain management and improving business performance. They observed that supply chain management, a management method to optimize system-wide costs, has evolved as an application of information technology (e-commerce, e-business). It is an established fact in the present scenario of importance of supply chain and inventory management that information is the key to successful supply chain management leading to effective inventory management that result into the overall profitability of the organization. This is clearly evident that without proper information sharing, product flow is impossible. This is all the more important from the point of view of the developing countries where a time consuming paper based information sharing system needs to be converted to keep pace with the present day development of information technology. A. Gunasekaran et al. [13] observed that supply chain management has been a major component of competitive strategy to enhance organizational productivity and profitability. The authors also found that in recent years, organizational performance measurement and metrics have received much attention from researchers and practitioners. The role of these measures and metrics in the success of an organization cannot be overstated because they affect strategic, tactical and operational planning and control. Performance measurement and metrics have an important role to play in setting objectives, evaluating performance, and determining future courses of actions. 165 P a g e

6 However, to bring about improved performance in a supply chain and move closer to attainment of the elusive goal of supply chain optimization, performance measurement and improvement studies must be done throughout the supply chain. A comprehensive control system will be necessary in order to assure effective and efficient performance measurement all along the supply chain. Such a system needs to be developed carefully in order that it promotes mutually advantageous exchange among participants to ensure that relationships endure the test of time. Also, creative efforts are needed to design new measures and new programs for assessing the performance of the supply chain as a whole as well as the performance of each organization that is a part of the supply chain. Mathew McCarter et al. [14] proceeded with a purpose to provide academics and practitioners a quantitative and qualitative analysis of the benefits, barriers, and bridges to successful collaboration in strategic supply chains. In this area, customer satisfaction and service is perceived as more enduring than cost savings. It is a recognized fact that technology, information and measurement systems are major barriers to successful supply chain collaboration. However, regardless of the function or channel position, it is believed that supply chain management can help companies thrive in today s intensely competitive marketplace. But, running parallel to the optimism regarding supply chain management must be the realistic view of the challenges found embedded in the human and mechanical links of the supply chain to leverage collaboration so as to attain strategic supply chain success. Irungu, Benson Kuira et al. [15] sought to find out the contribution of adoption of Vendor Managed Inventories (VMI), also known as Consignment Stock Management, as a strategy that shrewd business executives in the retail supermarket chains could use to gain competitive advantage by leveraging an inventory supplier reliability, lower administrative costs, and strong buyer / supplier relationships to grow revenues and reduce risk. On reviewing the research study, it is observed that many other aspects of the vendor managed inventory systems could also have been focused upon by them. Some of the areas that need attention are developing strong ICT (Information Communication Technology) systems which are a critical factor to establish an efficient system, strong warehousing facilities, engaging large suppliers to lease from third parties to hasten the implementation of VMI in retail supermarkets and phasing of implementation with few established suppliers and with few non-shelf life goods. Arthur Hsu et al. [16] observed that electronic commerce has significant impact on enterprise operations. Businesses are eager to tap into new opportunities such as the proliferation of alternatives in the electronic marketplace, real-time access to supply information including both product price and lead-time and an efficient inter-business electronic collaboration infrastructure. Through their research study, the authors presented a leadtime cost trade-off (LCT) model in supply chain management and the related solution procedure that enables an enterprise to take advantage of abundant choices and flexibility that come with electronic commerce. However, we may further direct our research and address to study the other performance measures of the supply chain such as product quality, service levels, and environmental impacts that have not been addressed by the authors in the model proposed by them. Also, strategic aspects of supply chain management need further focus. 166 P a g e

7 B. S. Sahay et al. [17] aimed to analyze research conducted for assessing the current state of supply chain management practices followed by Indian organizations for identifying important areas that need to be addressed in order to increase their competitiveness. Their research findings revealed that most of the Indian organizations have aligned their supply chain objectives with their business objectives and that they are now on course of aligning their processes and management focus. Although, the supply chain alignment model suggested in the paper provides a framework for realizing true supply chain efficiency and competitiveness, but it remains a fact that different organizations will align their processes and management focus as per the focal areas of their organizations depending on their capabilities and market situation. Some will need to focus initially on the business processes whereas, others can move very quickly into the more advanced optimization with the support of top management involvement. G. Reza Nasiri et al. [18] proceeded to study the area of effective inventory management which is very critical to market success. The purpose of their study was aimed at formulating an integrated model for the location of warehouse, the allocation of retailers to open warehouses, and finding the perfect policy for inventory control to managing order quantity and safety stock level. Their goal was to select the optimum numbers, locations, capacities of the opening warehouses and inventory policy so that all stochastic customer demands can be satisfied. However, it is apparently visible that methodology and formulations proposed by the authors have not been applied simultaneously to more complex supply chains with multi-type, multi-level warehouses. Also, for a better customer service level, it is possible to introduce some opened warehouses as the main supplier warehouses, to satisfy the other warehouses in their lead time. In some real-world situations, for avoiding backorders, some warehouses must be supported by others. Stephen C. Graves et al. [19] configured the supply chain for a new product for which the design has already been decided. The central question of their study was to determine what suppliers, parts, processes and transportation modes to select at each stage in the supply chain. There are multiple options to supply a raw material, to manufacture or assemble the product, and to transport the product to the customer. Each of these options is differentiated by its lead time and direct cost added. On account of these various choices in the supply chain, the configuration problem is to select the options that minimize the total supply chain cost. Based on the research of the authors, some of the points that come to the fore are: One; the time to market costs should be incorporated, two; more general network structures should be considered, three; depending upon the individual choices of the firms, a requirement of limiting the number of different vendors may arise that the model can choose, four; they assumed that a single option is chosen at each stage whereas, in reality, a firm may often decide to have dual or multiple sources for which the model may be developed and five; a supply chain configuration for more conventional assumptions on the behavior of the inventory system may be developed. P. Radhakrishnan et al. [20] tried to focus their work in the area of stock level and cost in a supply chain environment. The importance is evident since inventory management plays a vital role in supply chain management. The service provided to the customer eventually gets enhanced once the efficient and effective 167 P a g e

8 management of inventory is carried out all through the supply chain. Thus the determination of the inventory to be held at various levels in a supply chain becomes inevitable so as to ensure minimal cost for the supply chain. Minimizing the total supply chain cost is meant for minimizing holding and shortage cost in the supply chain. However, it is beyond any doubt that inventory management is a significant component of the supply chain management. Also, it should have been emphasized that it needs to be established that extensive studies should be performed for proving that supply chain costs must be minimized by handling inventory levels in numerous production and distribution operations particularly related with diverse chain stages and that the members of a supply chain are responsible for the same. Sean P. Willems [21] intended to study the ways to increase the profitability of an organization from the point of view and with the help of inventory optimization. The author observed that the underlying drivers of inventory, in the form of demand and supply variability, are common to all supply chains, making inventory optimization applicable to every industry. But with the help of the advanced tools available now, the companies are able to do the job faster, more accurately, and with greater business impact. Although, inventory optimization is applicable to all but the simplest supply chains, it is worth pursuing depending upon the relative importance of inventory and service levels versus the other initiatives the company may pursue. It is assessed and emphasized that there is no alternative but to work for inventory optimization in cases when the total inventory is targeted to reduce by 10% or more, when a postponement strategy is to be implemented, when the service levels are to be increased without increasing inventory, when inventory levels need to reflect product-family profitability, when new products are to be launched more frequently or cost effectively, when raw material or finished goods are to be sourced from abroad, when manufacturing and distribution operations need to be consolidated, when inventory targets are to be updated more frequently than once a year or when the supply chain experiences significant bullwhip effect or experiences seasonality or end of quarter push or consists of more than one location or channel. 3. SUMMARY OF THE REVIEW OF RESEARCH PAPERS The review of the research papers conducted as above is summarized as noted below: The research study of supply chain management was done by Atul B. Borade et al. [1] for understanding and arranging all the activities of the chain systematically so as to give a complete picture of it since it has become a vital issue for manufacturers, professional and researchers. Similarly, Bernard Burnes et al. [2] aimed to develop a research agenda for risk in supply chain management and proposed that applications of risk theory to supply chain management is in its early stages and that the models of supply chain risk which have been proposed so far need to be tested empirically. Stefan A. Seuring [3] aimed to assess the current practice in research on supply chain management applying a case study method by conducting the study on two particular research fields viz. sustainable supply chain management and performance supply chain management and thereby used these as examples. Also, Brent D. Williams et al. [4] found two major themes to emerge from logistics research focused on inventory management. First, logistics researchers have focused considerable attention on integrating traditional logistics decisions such as transportation and warehousing with inventory management decisions 168 P a g e

9 using traditional inventory control models. Second, logistics researchers have more recently focused on examining inventory management through collaborative models. Through the research work conducted by Benita M. Beamon [5], the supply chain performance measures in the areas of qualitative and quantitative as well as the performance based on cost, customer responsiveness, and those used in supply chain modeling were studied. Similarly, Noha Mostafa et al. [6] performed a study on a complex high-value products manufacturer, whose repairable items were both expensive and critical. Mark Barratt [7] studied the idea of collaboration in the area of supply chain management and observed that it has proved to be difficult to implement as there has been an over-reliance on technology in trying to implement collaboration in supply chain management and a failure to understand when and with whom to collaborate which is due fundamentally to a lack of trust between trading partners. Likewise, Ik-Whan G. Kwon et al. [8] examined the relationship between level of trust and several relevant constructs drawn from transaction cost analysis (such as asset specificity, behavioral uncertainty, and partner s opportunism) and social change theory (informational sharing). Elzbieta Malyszek et al. [9] proceeded with a purpose to provide a method of reducing inventory costs in multiproduct and multi-nodes supply chains with an approach that was based on applying the classical inventory control models and simulation. Whereas, Stephen C. Graves et al. [10] observed that the life cycle of all products is becoming shorter and shorter in all markets. Given these short product life cycles, product demand becomes increasingly difficult to forecast. Moreover, demand is never really stationary because the demand rate evolves over the life of the product. Similarly, John J. Neale et al. [11] worked in the area of non-stationary demand faced by many companies because of short product life cycles, seasonality, and customer buying patterns or other factors. Abul Mukid Mohammad Mukaddes et al. [12] studied the information flow in a supply chain for developing an information model for dealing with the accompanying challenges and A. Gunasekaran et al. [13] observed that supply chain management has been a major component of competitive strategy to enhance organizational productivity and profitability. Similarly, Mathew McCarter et al. [14] proceeded with a purpose to provide academics and practitioners a quantitative and qualitative analysis of the benefits, barriers, and bridges to successful collaboration in strategic supply chains. Irungu, Benson Kuira et al. [15] sought to find out the contribution of adoption of Vendor Managed Inventories, also known as Consignment Stock Management whereas, Arthur Hsu et al. [16] observed that electronic commerce has significant impact on enterprise operations. Businesses are eager to tap into new opportunities such as the proliferation of alternatives in the electronic marketplace etc. B. S. Sahay et al. [17] aimed to analyze research conducted for assessing the current state of supply chain management practices followed by Indian organizations for identifying important areas that need to be addressed in order to increase their competitiveness. Similarly, G. Reza Nasiri et al. [18] proceeded to study the area of effective inventory management which is very critical to market success. 169 P a g e

10 Stephen C. Graves et al. [19] configured the supply chain for a new product for which the design has already been decided. The central question of their study was to determine what suppliers, parts, processes and transportation modes to select at each stage in the supply chain. However, P. Radhakrishnan et al. [20] tried to focus their work in the area of stock level and cost in a supply chain environment and Sean P. Willems [21] intended to study the ways to increase the profitability of an organization from the point of view and with the help of inventory optimization. 4. AREAS FOR FURTHER RESEARCH From the above review of the research papers, it is observed that all the learned authors have done excellent jobs for enriching the knowledge base in the vast areas of supply chain and inventory management. However, areas that need closer look by way of further research work in the field are enumerated as below: Development of strong information communication technology particularly for vendor managed inventory systems Development of methodology and formulations for supply chains with multi-type and multi-level warehouses for improving effectiveness of inventory management system Formulation of ways and means for establishing the fact that supply chain cost must be minimized by handling inventory levels in numerous production and distribution operations particularly related with diverse chain stages To work to analyze the challenges found embedded in the human and mechanical links of a supply chain with the purpose of designing proper bridges to leverage collaboration so as to attain strategic supply chain success To find out and establish the methods and techniques to develop inventory cost system which may be based upon customer satisfaction level, order execution time etc. To aim to evaluate the supply chain efficiency to be characterized in a multi-dimensional way since any one criterion may not be sufficient for the purpose To aim for improving the area of supply chain management. Some factors like incorporation of time to market costs, consideration of more general network structures, model for limiting the number of vendors depending upon the individual choices of the firms, model for deciding on dual or multiple sources etc. need to be developed Research work for developing a supply chain alignment model for realising true supply chain efficiency is a need of the day 170 P a g e

11 Opportunity for developing the area of supply chain management depending upon the present trends like outsourcing, information technology adoption and third party logistics exists for concentrating on further research Research needs to be done in the areas of evaluation and development of supply chain performance measures and development of models and procedures to relate decision variables to the performance measures Inventory optimization techniques need to be developed for targeting reduction in inventory levels or when service levels are to be increased without increasing inventory. Research work for inventory optimization will also be beneficial in cases of new product launching or when raw materials / finished goods need to be imported or when manufacturing and distribution operations are to be consolidated Research work needs to be focussed for addressing some performance measures of the supply chain such as product quality, service levels and environmental impacts To attain the goal of supply chain optimization, performance measurement and improvement studies need to be performed throughout the supply chain Creative efforts are needed to design new measures and new programmes for assessing the performance of the supply chain as a whole as well as the performance of each organization that is a part of the supply chain. 5. CONCLUSION In view of the further research areas as above, it is observed that the influence of information technology is playing a very important role in the present scenario of supply chain and inventory management systems. This is made clear from the working of large and medium scale manufacturing industries which are adopting / depending more and more on information technology in the areas of overall planning, supply chain and vendor management to the extent of vendor development, performance evaluation and rating etc. as also on management of raw material to finished goods inventories. One of the examples is the Enterprise Resource Planning (ERP) which has been made possible as well as simplified with systems such as SAP R-3 and other similar sophisticated software. The present review of research works has been done with an intention to substantiate the knowledge base in whatever minimal manner possible existing in the world in today s scenario of global market and unlimited flow of information which is available to any user who wishes to take advantage from the resources. The reviewer gratefully acknowledges the efforts of all the research scholars named herein who have taken great pains to do the extensive studies and published them for the benefit of other scholars or any other users. REFERENCES 171 P a g e

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