Effect of Inventory Policy on Supply Chain Performance

Abstract

One important mission of a manager within a supply chain organization is to choose an inventory policy that ensures the best performance for his supply chain covering from end to end. SC performance can be measured by qualitative performance criteria which has no direct numerical records (like customer satisfaction indicators, products quality , SC vulnerability, SC resilience) and on also quantitative type measures that can be evaluated numerically such as (fill rate ratio, total cost of SC, inventory levels values, resource utilization percentage). Different factors are affecting the performance of any Supply chain, such as, supply chain structure diagram, inventory control policy used, information sharing strategy, customer demand pattern and seasonality, forecasting methods used, supplier lead time and review period between order placement. Inventory policy is important factor that affect the supply chain performance, it provides an appropriate goods on hand to avoid run out of stock and a balance between the incurred cost and material holding cost. Its techniques help to take two main decisions for every inventory stored item, the timing of item ordering and the orders sizes. Inventory policies can vary according to different factors and conditions that are affecting the supply chain such as, planning horizon, number of items, order quantity, frequency of review, lead time, supplier capacity, customer demand, stocking points and unsatisfied demand. As well as Inventory policies can be formulated for a specific supply chains like service industries, decaying items, models with trade credit, inflations and shortages treatment. Customer demand can heavily affect the supply chain performance and the choice of the best inventory policy, the first type is regular demand which can be exactly known, unlike the second type, the probabilistic demand. Both can be divided into static, which does not have any time variation, then it can be computed with certainty, and dynamic, which may vary with such that the demand variation is known with certainty.