Analysis of Supply Chain Inventory

Technische Universitt Dresden,
Department of Business Management and Economics

in cooperation with
Dresden International University (DIU)
Analysis of Supply Chain Inventory management Strategy
Thesis for Supply Chain Management Course
Name: Student 1
Student 2
Student of MBA Logistics Management course at DIU
Date: ...
Abstract
During the recent several years, supply chain management is more and more
important day by day. The concept of supply chain management (SCM) means link
supplier, manufacture, retailer to final customer into a holistic management model
through pre-information flow and material flow. Supply chain management regulate
and control information flow, material flow, logistics and cash flow in a holistic view.
However, inventory management takes a very important component in the supply
chain management.
Inventory management problem is a very important chapter in SCM, due to the

variation of enterprise organization and management model, comprising with
traditional inventory management, inventory management under SCM environment
has much new characteristics and requirement. Under SCM environment, traditional
independent inventory management cant satisfy the need of SCM, therefore integrate
inventory management responsibility for optimal inventory level for the whole supply
chain is mandatory.
This article describes the function of supply chain inventory management, analyses
the existing problems, present the strategy of inventory management under SCM
environment.
II
List of Contents
List of Contents ........................................................................................................... III

List of Abbreviations ...................................................................................................IV
Chapter I. Introduction ................................................................................................... 1
1.1 Research Background ........................................................................................... 1
1.2 Research Motivation and Significance ................................................................. 1
1.3 Content of the Thesis............................................................................................ 2
Chapter II. Theoretical Foundation and Previous Studies ............................................. 3
2.1 Supply Chain Inventory Management Related Theories ..................................... 3
2.1.1 Theory of Supply Chain Inventory Management .......................................... 3
2.1.2 Characteristics of Supply Chain Inventory Management .............................. 4
2.2 Models of Supply Chain Inventory Management ................................................ 5
2.2.1 ECR (Efficient Consumer Response) ............................................................ 5
2.2.2 VMI (Vendor Managed Inventory) ............................................................... 6
2.2.3 JMI (Jointly Managed Inventory) .................................................................. 7
2.2.4 CPFR (Collaborative Planning, Forecasting and Replenishment) ................ 8
Chapter III. Analysis of the Existing Problems in Supply Chain Inventory
Management ................................................................................................................... 9
3.1 Information problem in Supply Chain Inventory Management ........................... 9
3.2 Operation problem in Supply Chain Inventory Management ............................ 12
3.3 Planning and Strategy problem in Supply Chain Inventory Management ......... 14
Chapter IV. Supply Chain Inventory Management Strategy with Case Study ............ 15
4.1 Management and Analysis of Enterprises Inventory ........................................ 15
4.2 Case Study .......................................................................................................... 18
Chapter V. Conclusion and Prospects .......................................................................... 20
5.1 Limitations of This Research ............................................................................. 20
5.2 New Ideas and Prospects .................................................................................... 21
List of Reference ............................................................................................................V
III
List of Abbreviations
SCM Supply Chain Management
ECR Efficient Consumer Response
FMCG Fast Moving Consumer Good
EDI Electronic Data Interchange
CPFR Collaborative Planning Forecasting and Replenishment
VMI Vendor Managed Inventory
JMI Jointly Managed Inventory
CRP Continues Replenishment Program
JIT Just In Time
IV
Chapter I. Introduction
1.1 Research Background
In the modern market system, the connection between enterprises is closer and closer,
gradually formed an interest of community from supplier, manufactory, distribution,
retailer, to final customer as a supply chain. Since 21st century, the concept of Supply
Chain has been increasingly widely used. According to the definition in Journal of
Business Logistics, we can understand supply chain management as The systematic,
strategic coordination of traditional business functions and tactics across all business
functions within a particular company and across businesses within the supply chain,
for the purposes of improving the long-term performance of the individual companies
1
and the supply chain as a whole
For all activities in supply chain management the fulfilment of customer requirement
with minimum operation cost is the ultimate target. As a ring of SCM inventory
management carries great weight in the entire supply chain since inventory decisions
straight linked with the production and level of customer service. Imperfect decisions
can result in shortage of raw materials or semi-products, which will lead to great lose
and directly impact the customers satisfaction. Thats the reason why making perfect
inventory decisions with consideration of uncertainties and various costs is a
challenge for most of enterprises and only with outstanding inventory management
efficiency and effectiveness of entire supply chain could be realized.
1.2 Research Motivation and Significance
As we mentioned above, inventory management occupies a decisive position in

supply chain management. This point of view could also be found in many literatures.
In sixth edition of The Management of Business Logistics the writer mentioned that
1
Mentzer et al.,2001, p1-25
1 / 22
managing the full inventory stream is increasingly being used to allow companies
to gain a competitive edge. 22 To redesign the process of inventory both cost and risk
should be paid attention to, but this is never a simple thing because it involves so
many players. How should we integrate this process from suppliers and manufacturer
to distributors and customers? How could we keep good communication and
transparency information sharing in supply chain? How should we optimize
companys total cost, overall performance and competence in whole supply chain at
same time? To solve these questions we decided to write this thesis, which focuses on
discussing analysis of supply chain inventory management strategy, and some opinion
about how to improve inventory management, in order to optimal inventory
management in supply chain.
1.3 Content of the Thesis
This thesis consists of five chapters in total.
Chapter one is a brief introduction for the topic of our thesis and the background
about this research. It contains the explanation of the motivation and signification
about the topic and the importance of the inventory management in supply chain as
well.
Chapter two is theoretical foundation and previous studies, which introduces the
theories that relate to supply chain inventory management and models of supply chain
inventory management. It will also summarize the advantages and disadvantages of
each management model base on the study of relative literatures.
Chapter three analyse the existing problems in supply chain inventory management.
2
John J. Coyle et al., 1999, p157
2 / 22
Chapter four is the supply chain inventory management strategy with case study,
which bases on the problems that have been discussed in chapter three. Relative
strategy solution will be elaborated with practical case study.
Chapter 5 is conclusion and prospect. This part concludes the study about supply
chain inventory, analyses the limitation about this thesis and points out the direction
of future study.
Chapter II. Theoretical Foundation and Previous Studies
2.1 Supply Chain Inventory Management Related Theories
2.1.1 Theory of Supply Chain Inventory Management
Supply chain is a demand-supply network within and across companies, which

encompasses the planning and management of all activities involved in sourcing and
procurement, conversion and all logistics management activities which also includes
coordination and collaboration with channel partners (suppliers, intermediaries,
third-party service providers, and customers)3. The goal of supply chain is to fulfil
market demand efficiently.
To realize the supply chain management, supplier, manufactory, distribution centre

and retailer must be integrated and optimized in order to turn the raw material
effectively and efficiently into final products. This means both time the reduction of
total cost and inventory and the allocating optimization of the resources. Most
important is through information and organization network to realize efficient
connection of production and sales with logistics flow, information flow.
3
Cf. Council of Supply Chain Management Professionals (CSCMP), 2013
3 / 22
2.1.2 Characteristics of Supply Chain Inventory Management
Due to the uncertainty of market demand, production plan and logistics plan,
inventories exist in the different part of supply chain as different roles. Depending
upon the role a firm plays, the risk of each part is also various and the typical
4
measures of inventory exposure are time duration, depth, and width of commitment.
In the traditional supply chain management, supplier, manufactory and retailer are
forecasting and managing their own inventory individually, and raising inventory
level to deal with the uncertainty of demand, therefore, incorrect and delayed demand
information cannot be avoided. In order to keep constant production and avoid losing
profit caused by outing of stock, supplier and manufactory often hold enough safety
stock and retailer always holding certain level of stock for dealing with quantity
uncertainty and market demand uncertainty. Therefore, optimizing inventory in the
whole supply chain is not only reducing burden of each part in supply chain, but also
improving efficient of supply chain operation and reducing supply chain operation
cost.
The goal of supply chain inventory management follows the goal of whole supply
chain: Planning, organizing, controlling and coordinating through the entire supply
chain to minimizing inventory, inventory cost and waste.
Supply Chain inventory management has following four characteristics:
1. Integration management.
Every part in supply chain should be integrated as a whole component.

Throughout logistics-, information-, value-, cash flow in entire supply chain
process.
4
Cf. Bowersox D.J. et al., 2010, p131
4 / 22
2. Enlarge resource scope.
Management needs consideration both of how to allocate own resource internal of

the company, which is typical for traditional inventory management, and how to
use resource in the whole supply chain more efficiently.
3. Cooperation relationship.
As company management has to consider the supply chain efficiency, all

companies in one supply chain should build up cooperation relationship and work
together aim for Win-Win situation. Companies in cooperation relationship
should contribute to reduce total inventory level in a supply chain through fast
marketing reaction. Therefore inventory management becomes a mechanism to
balance the whole supply chain instead of a step just for ensuring production or
operation.
2.2 Models of Supply Chain Inventory Management
2.2.1 ECR (Efficient Consumer Response)
Efficient Consumer Response believes that companies can serve consumer better,
faster and at less cost by working together with trading partners. 5It is a widely used
technique in Fast Moving Consumer Good (FMCG) which aims to remove
unnecessary costs from the supply chain and make the sector, as a whole, more
responsive to consumer demand .
To reach win in common ECR aims to realize internal supplier-customer relationship,

which gives manufacturer, logistics and trade the chance to get first-hand information
from customer about what they really want. This strategic competitive relationship
5
ECR Community, 2014
5 / 22
can turn the situation from passive (push) to active (pull) for the company. For
inventory management ECR can help to improve the inventory turnover, reduce the
amount of shelf-warm products and avoid shortfalls. At the same time the costs of
stockpiling processes can be saved. The information flow in the ECR is paperless with
EDI, so it is easier to transfer and document.
Talking about the limitation of ECR, we should aware that it doesnt include the
forecast step and this is the reason why Collaborative Planning Forecasting and
Replenishment (CPFR) is formed to attain a higher cooperation level. Otherwise the
internal supplier and customer relationship is also hard to build up and it always need
about 4-5 year to promise the quality of joint work.
2.2.2 VMI (Vendor Managed Inventory)
Vendor Managed Inventory is a supply chain practice where the inventory is

monitored, planned and managed by the vendor on behalf of the consuming
organization, based on the expected demand and on previously agreed minimum and
maximum inventory levels.6
There are numerous benefits by using VMI. With VMI the inventory level could be
reduced, the whole processing time could be shortened, the inventory turnover ratio
could be improved and the distribution could be optimized. Another advantage is that
the whole process is organized with computer, so there will be also less data entry
errors. Especially for inventory management VMI can easily incorporate promotions
into the inventory plan and stock level is also visible for manufacturer, so that they
can see the potential need for an item before the item is ordered and better identify
priorities.7
6
Wolfgang Kersten et al., 2007, p114
7
Cf. Vendor Managed Inventory, 2014
6 / 22
The disadvantage of vendor management inventory is that the cooperation is limited

and the process is more dependent on supplier, so without enough communication
during the inventory decision making process the risk of vendor will be increase. That
means during the learning process both side should be prepared to the occurrence of
errors.
To avoid the potential pitfalls trust and information transparency is very important.
Supplier and customer need to have good cooperation, so that every change about the
normal ordering pattern or the situation like gain and loss of large customer should be
informed to manufacturer in time. Each part in cooperation relationship should
understand that VMI can reduce the cost for both side, this will help them better
execute the system. Every employees involved should understand that VMI can bring
profit to both vendor and customer side, so they can be more active and willing to
accept the system. Setting consistent goal is also necessary. Vendor and customer
should be clear about their own liability, and come to a conclusion of consistent goal.
Both side should contribute to reach the goal, reduce waste and to minimize cost.
2.2.3 JMI (Jointly Managed Inventory)
Jointly managed inventory is a strategy for solving the bullwhip effect in a supply
chain due to each part of the supply chain manage inventory individually. Its an
efficient way to improve supply chain synchronous. It is an enhanced version of VMI
system because it integrated the customer and vendor. JMI promotes the collaborative
planning between the vendor and the customer. It creates a platform for mutual data
sharing and the both side have the chance to meet face-to-face. With open
communication understanding of each other can be improved and it also create an
opportunity for joint planning and inventory management. 8 The concept of joint
managed inventory should start from distribution centre function. In practical life
8
Cf. Michael McClellan, 2002, p75
7 / 22
retailers only keep very less inventory and the main part of inventory is holding in
distribution centre, in order to release single retailer from pressure of inventory.
The advantages of jointly managed inventory are obvious. It transfers the traditional
multi-level and multi-point inventory models into the inventory management of core
companies, so the whole process has been simplified and the cost has been reduced.
To build this system the sharing of information is a basic element and this kind of
communication do benefits to build good internal relationship. Since the inventory of
suppliers has been stored directly in the warehouse of core companies, so the
supplement of raw materials and subassemblies for the core companies can be
promised. At the same time the core company can control, schedule and manage the
inventory unitarily, which promises the efficiency of the operation, reduce the risk of
shortage and improve customer service level. In addition this kind of inventory
management model also creates favourable conditions for using other supply chain
management methods like CRP, JIT etc.
On the other hand the close communication also leads to high cost of coordination. To
form this kind of alliance and promise the healthy operation of the coordination centre
is also quite difficult. Otherwise the JMI system also high level operation control,
which is quite hard to realize.
In short, joint managed inventory interprets new cooperation relationship of strategic

vendor union. It emphasizes joint, planning inventory together, inventory
managements on each part of supply chain have to consider about coordination,
consistent demand forecast with linked part of supply chain to eliminate over forecast
demand.
2.2.4 CPFR (Collaborative Planning, Forecasting and Replenishment)
Due to continuous improvement of modern information technology and management

technology, the disadvantages of VMI and JMI are being fixed. From these
8 / 22
improvement a new inventory management strategic model, CPFR, is born. It realizes

deeper and wider cooperation in entire parts of the supply chain.
CPFR strategy can reduce the inventory level of retailer and at the same time increase
the sales volume of supplier. It covers entire supply chain cooperation process. The
accuracy of forecast is improved through joint management business process and
transparency information in order to reach the goal of efficient supply chain, low
inventory and high customer satisfaction.
Talking about the advantages of CPFR there are following key benefits. With the
more accurate prediction the quality of the customer service can be improved. High
quality forecast of demand can reduce the possibility of stock-outs and let the supplier
better understanding the need of the customers, so that their safety stock inventory
will be reduced and the inventory turnover ratio will rise. That means they can keep
lower inventories for higher profits. CPFR model can also realize effective
cooperation of each parts in supply chain based on daily exchanging of information
and direct communicating channels, therefore they are able to create a win-win
9
situation.
The problem of CPFR model is that it doesnt take the customer as central part
completely and the collaborative process is not perfect.
Chapter III. Analysis of the Existing Problems in Supply Chain
Inventory Management
3.1 Information problem in Supply Chain Inventory Management
When Max Muller mentioned about the basics of Supply Chain Risk Management,
he said that Information is at the very heart and soul of SCM. Without
9
Cf. John Berry, 2013
9 / 22
information, it is impossible to effectively coordinate activities within a supply

chain. Inventory management, as a part of SCM, also depends on communication
either internal or external. Exact and effective data will help the whole
organization to develop and choose the suitable management concept and handle
the status correctly. This fact is easily be realised, however the disruptions of
transformation in inventory management still occurs often based on following
reasons.
(1) Lack of consciousness of whole supply chain management.
As we all know, performance of a supply chain depends on performance of

individual part in a supply chain. The problem exists today as that the goal of each
individual part in a supply chain may not relevant to the goal of the whole supply
chain, and sometimes it may even against the goal of the whole supply chain.
To judge the achievement of the management, in a supply chain propel evaluation

criteria, which uses to measure the performance of whole supply chain should be
set. However sometimes supply chain managers will ignore the necessity of this
step or shortage of the awareness to establish unified criteria, and this will lead to
the situation of lacking necessary information and the failure to optimize the
whole supply chain. For example, some company may take inventory turnover
ratio as criteria to evaluate supply chain performance, but take no consideration
about reaction time to market, or service performance. This results in the shortage
of information for improving the general customer service level and lead to
dissatisfaction of clients.
(2) Ineffective information transfer system.
As mentioned above, in a supply chain information plays an important role in

supply chain. Only with relative data can demand forecast be made, inventory
status be monitored and production be planned in the most effective way.
10 / 22
However from point-of-origin to end use there are so many organization involved,
so its really hard for an enterprise, especially an international enterprise, to exert
influence over all parts of it with up to date inventory management and promise
the transparency of information.10 So that delayed information are always be used
to make decisions, and the influence of that is apparently. How can suppliers
determine the demand of current market by using this kind of inaccurate
information? With the absence of information transfer system, inventory accuracy
cannot be promised and short term production plan will be affected.
(3) Untimely and inaccurate products handover status.
The products handover status are hard to determine because when we talking
about supply chain inventory management we should take many elements into
consideration. Changes in demand and cost, such as seasonal fluctuations, trends,
back orders, equipment failures, advertising and promotions, and competitors
pricing will reduce determinacy in inventory management and rise risk in supply
chain management.11
Except these general factors, customers themselves also can be seen as the source
of uncertainty. Once customers place an order, they usually expect to have a fixed
handover date, but during the time waiting for order delivery they may revise
request of handover status. Especially when they delay handover date, a lot of
companies dont really pass this most accurate status to their supplier.
This kind of untimely and inaccurate products handover status will increase
inventory of supplier.
(4) Inappropriate inventory management method caused by information inequality
10
Cf. Max Muller, 2011, p216
11
11 / 22
As stated above products handover status in time is a hard-to-get data. This is the
causation that the source suppliers are unable to get direct marketing information
and to give fast reaction to market demand. Every link in supply chain make
choice of management method based on the part of information they can get, so
the selection will be different from part to part. Moreover decentralized inventory
still appear in many field, which also affects the situation. Without systematic
management to transfer information between separate parts an appropriate
inventory management method for whole supply chain become a mission
impossible and the optimization of supply chain inventory management will be
hopeless.
3.2 Operation problem in Supply Chain Inventory Management
Besides information problem, operation problem in inventory management

also cause the inefficiency of the supply chain. Only with the consideration in
holistic view, the suitable application of inventory strategy and the renovation
of the inventory control technology operation problem can be solved.
(1) Ignore the influence of uncertainty on the inventory.
Uncertainty elements exist during supply chain operation process Your

company can be insured against many risks, but the real risk is not recognizing
what your risks are.12 Insurable risks are everywhere from order lead time,
transportation status, raw material quantity, production processing time,
transportation time to demand change. In these uncertainties some can be
quantized, some cannot. Many companies dont even study and follow source
or influence of quantifiable uncertainties, therefore increasing inventory or out
of inventory because of miscalculate order lead time etc.
12
12 / 22
(2) Simplify inventory strategy.
No matter manufacturing industry or logistics industry, inventory control is

necessary for ensure continuity of supply chain and fulfil uncertainty demand.
In part (1) of 3.2 we have already discussed about the necessity of
understanding and following uncertainty elements for designing suitable
inventory management strategy. These analysis are quite use for develop our
inventory strategy. Some suppliers are reliable on handover and quantity,
some are not. Some kinds of products are easy forecast, some are not.
Inventory management strategy should be able to interpret the future
development according to different situation. Actually the fact now is that in
many companies uniform inventory management strategy are simply used for
all kinds of products, and so the effectiveness of the inventory management
strategy doesnt really reflect in this case.
(3) Own inventory control technology has run out
There are a variety of inventory control methods, which can be used to

[determine] the ordering point (or date) of goods and the ordering quantity of
goods so as to minimize the total costs related to a stock of goods13. Each
company can choose their own inventory control technology based on their
needs, but with the limitation of inventory control capacity because of using
outdate inventory control technology or the limitation of chosen technologyit
is difficult to control inventory in optimizing way by company own. This task
is even impossible for a supply chain based on this situation. That is the reason
why the lot size and safety stock cannot be forecasted correctly and be planned
in most effective way. The finding of the way to integrate inventory
13
Akira Kagami et al., 1992
13 / 22
technology in a supply chain, which aims to achieve efficient inventory

control, is a key point for a company.
3.3 Planning and Strategy problem in Supply Chain Inventory Management
After discussing the problem of information and operation, we go to the part

about planning and strategy. In the following paragraph we will discuss
something about the cooperation and production process design.
(1) Lack of cooperation and coordination
In supply chain management there is a concept named relationship

management, which puts emphasis on communication and cooperation. Rob
Handfield accents that Relationship management affects all areas of the
supply chain has a dramatic impact on performanceA number of supply
chain initiatives fail, however, due to poor communication of expectations and
14
the resulting behaviours. In inventory management organizational barrier
can cause the changing situation of inventory, only with good relationship
between different parts we can reduce the effects of this barrier.
The whole supply chain is a dynamic system, therefore cooperation and

coordination are very important between companies. From the design of
supply chain inventory strategy to production inventory, distribution inventory
and retailer inventory, once lack of cooperation exists, the coordination of
inventory management will be more complicate and difficult. If individual part
only considers on its own interests to make operation decision, the whole
supply chain performance will be affected. Therefore, trust, communication,
cooperation and coordination are crucial elements in a supply chain inventory
management.
14
Rob Handfield, 2002
14 / 22
(2) Inconsideration of the influence of production process design
Modern product design and advanced production technology has highly

increased the production efficiency, but at the same time if the company dont
lay stress on production process design and update the process with the
development of the production technology the total cost can still not be
reduced. Ignoring the complication of supply chain inventory, the cost saved
by production process will be wasted on distribution and inventory due to less
consideration at the end.
Chapter IV. Supply Chain Inventory Management Strategy with Case Study
4.1 Management and Analysis of Enterprises Inventory
Consider of the information-, operation- and planning and strategy problems

mentioned above and compare the different management models, the collaborative
planning, forecasting and replenishment system can be a good choice use to deal with
these problem.
CPFR is developed in holistic view. It considers interest for all parts involved in
supply chain as partners, and sets up a joint management target and operation process
surround inventory management with other components in supply chain. By using
information technology and a standard set of business procedures trading partners
learn to combine their intelligence in the planning and fulfil their customer demand
15
with CPFR. The system covers entire supply chain cooperation process through
joint management and transparent information sharing to improve relationship
between distribution/retailer and supplier. By linking sales and marketing
information to supply chain planning and execution processes, CPFR can result in a
simultaneous reduction in inventory levels and an increase in sales for both retailers
15
Cf. VICS, 2004
15 / 22
and suppliers.16 Therefore CPFR can make better cooperation between partners
possible, remove barriers in coordination process and lead to good supply chain
performance and high customer satisfaction.
Basis of operation collaborative, planning, forecasting and replenishment:
a) Partnership framework and its operation rules mainly based on the demands of
consumers and the added value of the whole value chain. For operation
collaborative planning, forecasting and replenishment strategy, cooperation
partners must keep joint target such as to increase supply chain value.
b) To promise success operation of supply chain companies should apply continuing

guarantee and share responsibility. This is mandatory enterprise value for a
successful operation of collaborative, planning, forecast and replenishment
strategy.
c) Production plan base on same sales forecast in a supply chain should be planned.
Supplier and buyer has different knowledge of the marketing, under the condition
of protect individual business secret, exchange information and data between
supplier and buyer to improve marketing forecast and increasing accuracy of
forecast figure.
d) Reasonable benefit distribution mechanism, clear and effective responsibility and

risk sharing mechanism, and effective incentive mechanism should be established.
Fair and reasonable distribution mechanism, clear responsibility of manufactory,
supplier, distribution and retailer in a supply chain, effective incentive and risk
sharing, enhance consistency and coordination of supply chain operation.
e) Effective communication mechanism should be set. Establish information sharing

and communicating system, clarify communication channel for each part of
16
Yossi Aviv, 2005
16 / 22
supply chain. Through the information integration in the supply chain to raise the
transparency, lower uncertainty during supply chain operation, reduce inventory
level of supply chain and improve supply chain performance.
f) Restrictions in the process of supply should be eliminated. This limitation is

mainly caused by the inflexibility of enterprises production. In general, the
handover date stipulated in the customer order time is shorter than the time which
the suppliers need to manufacture these products. In this case, supplier has to keep
certain products inventory, but if the company can prolong the order cycle, and
make it consists with the supplier's production cycle, then the suppliers can
product according to the order and realize zero inventory, which will greatly
improve the economic benefits of enterprises.
g) The technical support of supply chain management inventory should be improved.

Supply chain management inventory technology includes: EDI, internet, barcode,
RFID etc. The communication technology and standardization of the working
language of each part in supply chain are two basic condition to ensure the
unobstructed communication. Unified standard should be set to control the daily
use of technical equipment and professional communication terms.
h) Industry standard should be developed and maintained. Another important

component of the value of the company system is the support for industry
standards. Each company has an individual development process, it will affect the
company cooperate with the partners. Industry standard must be set, and it should
be easy to implement and allows companies to the difference between at same
time. Only in this way the industry standard can be applied effectively.
Collaborative planning forecasting and replenishment has great effect to enterprises

organization structure and value of company. The formation of cooperative culture
atmosphere based on the trust between different parts is the biggest challenge of
17 / 22
collaborative planning, forecasting and replenishment. In order to fulfil customer

demand, its necessary for enterprise to establish cross function project team, which
do research on enterprise production planning and resource scheduling problem.
4.2 Case Study
Zara as a supply chain management benchmark in fast fashion industry that exert a
strong influence almost entire garment supply chain from design, purchasing,
production, distribution and retailing.
Design and order administration: Zara designs all its products. Commercial team
includes designer, market specialist and buyer together they produces designs are
selected for production. Designer draw out design sketches and discuss in the
commercial team for better matching of weaves, textures and colours etc. Each market
specialist has responsibility for dealing with specific stores discussing sales, orders,
new lines and other matters. On the other hand, finalizing orders from stores depend
heavily on these discussions with Market Specialist. To make final decisions what
products to make, when and volumes are generally made collectively by relevant
commercial teams, after the decision is taken, buyers responsible for the order
fulfilment process, such as planning procurement and production requirements,
monitored warehouse inventories, allocated production to various factories and
third-party supplier and keep tracking supply levels if any shortages or oversupplies.
Production: Zara manufacture ensures quick response to Zara orders critical for
fashion products. For example products suppliers in China are requested to handover
products to Zara nominated logistics suppliers in China 15 working days after receive
Zara order.
Distribution: Once logistics suppliers get handover date from suppliers, for sea freight
products, logistics suppliers must arrange suitable sailing schedule to ship out the
products within 7 days from handover date. And for airfreight products, logistics
18 / 22
supplier must arrange suitable flight to ship out the products within 3 days from
receive products from supplier. All products pass Zaras main distribution centre in
La Coruna. Orders for each store are packed into separate boxes and racks in the
distribution centre and normally ready for shipping 8 hours after those products have
been received. Logistics suppliers in Spain using truck pick up the merchandize from
distribution centre and deliver it to Zara stores in Europe directly and normally stores
in Europe receive their orders in 24 fours. To the Zara stores out of Europe, products
shipped by air, to the United States in 48 hours and Asia in 48 to 72 hours.
Retailing: Stores normally place orders and receive shipment twice per week. Most
items stay in stores less than two weeks. In order to avoid oversupply, Zara keep low
production quantities at the beginning of the season, and reacting quickly to orders
and new trends during the season.
Zara supply chain implements Inditex Extranet to integrate design, purchasing,

production, distribution and retailing for good communication in supply chain and
transparency information sharing. It supports Zara supply chain getting more precise
forecasts and smooth cooperation. Zara supply chain reacts faster by rely on these
forecast and reliable market information.17
Analysis of the case study:
Zara supply chain inventory management basis on collaborative planning, forecasting

and replenishment strategy. In the entire supply chain, Zara only has small volume of
inventory in stores. Each product, which has been sold in Zara store, is recorded in
stores database based on bar code technology. Therefore store manager could have
most precise data of sale and inventory. Store manager discusses with market
specialist about replenishment strategy based on these data, then establish
replenishment order information such as style number, quantity etc. in Inditex
17
Case development based on Zara (2003) from Kasra Ferdows et al.
19 / 22
extranet. Relevant buyer could receive this order from Inditex extranet automatically,
and then buyer links this order to relevant production supplier and logistics supplier.
Production supplier could prepare the products exactly follow customer need
according to these orders in Inditex extranet. So there is no need to prepare inventory,
and the logistics supplier could estimate shipping schedule and prepare shipping space
according to these orders in Inditex extranet in order to ensure the products could ship
out on time. Logistics supplier links shipping schedule in Inditex extranet after getting
products handover date from supplier. This information will send to distribution
centre and buyer automatically, then distribution centre could start organize further
transportation for final deliver to store and buyer could inform store to prepare
receiving. In case any part has incident, the relevant information about this incident
must be updated in Inditex extranet in order to notice relevant parts for preparing
solution. Zara insists that all communication should be done in Inditex extranet to
keep transparency information in supply chain for relevant party, which build up a
very crucial environment to realising collaborative planning forecasting and
replenishment. This is also one of the most important elements to keep Zara supply
chain with Just-In-Time and Zero Inventory.
Chapter V. Conclusion and Prospects
5.1 Limitations of This Research
The field involved in supply chain inventory management is very wide. Due to the
limitation of time and condition, this thesis only analyse and compare some classical
inventory strategy models, such as efficient consumer response, vender managed
inventory, jointly managed inventory and collaborative planning, forecasting and
replenishment, and doesnt involved the analysis of improved model or innovation
models. To develop the analysis the combination of different models can also be a
direction for study. When studying the references and literature which need to prepare
20 / 22
this thesis, we also find the importance of the calculation lot size and safety inventory
for supply chain inventory management, but since this is not the core part of our study,
we didnt include calculation part to support our opinion. For further study this will
also be an important part to discuss with.
In this research the main part is focused on collaborative planning, forecasting and
replenishment model, since its the most comprehensive model in the models we
listed above. However CPFR also has its limitation. It is not fit for every situation and
the application might differ from industry to industry, so simply copy of model cannot
bring expected benefits to the company. The establishing and operating of this
strategy model needs support from modern information technology. Every employees
involved should also have good training and the conscious of the necessity of using
this model. The cost of implementation is also high, so the top management-level
18
commitment is necessary for execute CPFR.
5.2 New Ideas and Prospects
As logistics management group in Copenhagen business school mentioned

International competition and the customers demand for timeliness and flexibility of
delivery are forcing companies to consider how they can increase their
competitiveness. The strategic literature often recommends that firms concentrate on
19
their core competencies and outsource other activities. That is the reason why in
recent years, third party logistics provider inventory management strategy becomes a
popular topic for the companies. Engaging of third party logistics provider could not
only reduce the cost, but also help the firms to provide high efficiency inventory
management service to fulfil customer request and realize efficient operation. The
outsourcing also give firm the chance to use providers experience and professional
18
Cf. Pamela Danese, 2007, p181-204
19
Tage Skjoett-Larsen,1999, p112-p126
21 / 22
logistics service. By support of third party logistics provider, supplier and buyer could
reduce their own inventory and increase overall competitiveness.
Therefore, we hope to discuss this topic deeper during our further study and working,
using theoretical and practical analyse to solve this third party logistics provider
management inventory strategy.
22 / 22
List of Reference:
1. Akira, Kagami; Koichi, Homma; Kichizo, Akashi; Takayuki, Aizawa; Hiroshi,

Mori (1992): Inventory control method and system, US5128861 A, date of
publish: 7th July 1992, date of last request: 5th November 2014
2. Bowersox, D.J.; Closs, D.J.; Cooper, M.B. (2010): Supply chain logistics
management, 3rd Ed., McGraw Hill International Edition: New York et al.
3. Council of Supply Chain Management Professionals (CSCMP): Bylaws of
CSCMP, revised July 19th, 2013
4. Dan, Bin; Zhang, Xumei (2000): Collaborative planning, forecasting and
replenishment for Supply Chain, in: Industrial Engineering, Vol.1, p35-37
5. ECR Community: What is ECR, in: ECR COMMUNITY: Efficient Consumer

Response, available under: http://ecr-all.org/about-ecr-europe/what-is-ecr/, last
change: 2011, date of last request: 9th November 2014
6. John, Berry (2013): What is Collaborative Planning, Forecasting and
Replenishment (CPFR)? , in Social Supply Chains, available under:
http://www.socialsupplychains.com/what-is-collaborative-planning-forecasting-a
nd-replenishment-cpfr/, last change: 2013, date of last request: 9th November
2014
7. John, J. Coyle; Edward, J. Bardi; C, John Langley (1999): The Management of
Business Logistics, 6th Ed., West Publishing Company: Eagan et al.
8. Kasra, Ferdows; Michael, Lewis; Jose, A.D. Manchuca (2003): Zara, in: Supply
Chain Forum Vol.4, No.2, p 62-67
9. Matt, Drake (2012): Global Supply Chain Management, 1st Ed., Business expert
Press: USA
10. Max, Muller (2011): Essential of Inventory Management, 2nd Ed., AMACOM:
New York et al.
11. Mentzer, J.T. et al. (2001): Defining Supply Chain Management, in: Journal of
Business Logistics, Vol. 22, No. 2, p. 125
12. Michael, McClellan (2002): Collaborative Manufacturing: Using Real- Time
Information to support the Supply Chain, 1st Ed., CRC Press: Boca Raton
13. Pamela, Danese (2007): Designing CPFR collaborations: insights from case
studies, in: International Journal of Operations & Production Management, Vol.27,
No.2, p181-204
V
14. P.C.L Goonatila (1984): Inventory Control Problems in Developing Countries,

International Journal of Operations & Production Management, Vol.4, Iss:4,
p57-64
15. Richards, Gwynne; Grinsted, Susan (2013): The Logistics and Supply Chain
Toolkit: Over 90 Tools for Transport, Warehousing and Inventory Management,
1st Ed., KoganPage: London et al.
16. Rob, Handfield (2002): Managing Relationships in the Supply Chain, available
under:
http://scm.ncsu.edu/scm-articles/article/managing-relationships-in-the-supply-cha
in, last change: 1st February 2002, date of last request: 1st November 2014
17. Tage, Skjoett-Larsen (2000): Third party logistics-from an interorganizational
point of view, in International Journal of Physical Distribution & Logistics
Management, Vol 30, No. 20, p112-p127
18. Vendor Managed Inventory: Benefits of Vendor Managed Inventory, available

under: http://www.vendormanagedinventory.com/benefits.php, last change: 2014,
date of last request: 30th October 2014
19. VICS CPFR Committee (2004): CPFR Design, available at
http://www.gs1us.org/DesktopModules/Bring2mind/DMX/Download.aspx?Com
mand=Core_Download&EntryId=631&PortalId=0&TabId=785, last change 18th
May, 2004, date of last request: 1st November 2014
20. Wolfgang, Kersten; Thorsten, Blecker; Cornelius, Herstatt (2007): Innovative

Logistics Management: Competitive Advantages through New Processes and
Services, 4th Ed., Erich Schmidt Verlag (ESV): Berlin
21. Yossi, Aviv (2005): On the benefits of collaborative forecasting partnerships
between retailers and manufacturers, Olin School of Business, Washington
University, available under:
http://pubsonline.informs.org/doi/ref/10.1287/mnsc.1060.0654, last change 29th
July 2005, date of last request: 1st November 2014
VI

Analysis of Supply Chain Inventory

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Analysis of Supply Chain Inventory

Uploaded by

Copyright:

Available Formats

Technische Universitt Dresden,

Department of Business Management and Economics

Analysis of Supply Chain Inventory management Strategy

Thesis for Supply Chain Management Course

Analysis of Supply Chain Inventory management Strategy

Inventory management problem is a very important chapter in SCM, due to the

List of Contents ........................................................................................................... III

SCM Supply Chain Management

ECR Efficient Consumer Response

FMCG Fast Moving Consumer Good

EDI Electronic Data Interchange

CPFR Collaborative Planning Forecasting and Replenishment

VMI Vendor Managed Inventory

JMI Jointly Managed Inventory

CRP Continues Replenishment Program

JIT Just In Time

1.1 Research Background

1.2 Research Motivation and Significance

As we mentioned above, inventory management occupies a decisive position in

1.3 Content of the Thesis

This thesis consists of five chapters in total.

Chapter II. Theoretical Foundation and Previous Studies

2.1 Supply Chain Inventory Management Related Theories

2.1.1 Theory of Supply Chain Inventory Management

Supply chain is a demand-supply network within and across companies, which

To realize the supply chain management, supplier, manufactory, distribution centre

2.1.2 Characteristics of Supply Chain Inventory Management

Supply Chain inventory management has following four characteristics:

Every part in supply chain should be integrated as a whole component.

2. Enlarge resource scope.

Management needs consideration both of how to allocate own resource internal of

As company management has to consider the supply chain efficiency, all

2.2 Models of Supply Chain Inventory Management

2.2.1 ECR (Efficient Consumer Response)

To reach win in common ECR aims to realize internal supplier-customer relationship,

2.2.2 VMI (Vendor Managed Inventory)

Vendor Managed Inventory is a supply chain practice where the inventory is

The disadvantage of vendor management inventory is that the cooperation is limited

2.2.3 JMI (Jointly Managed Inventory)

In short, joint managed inventory interprets new cooperation relationship of strategic

2.2.4 CPFR (Collaborative Planning, Forecasting and Replenishment)

Due to continuous improvement of modern information technology and management

improvement a new inventory management strategic model, CPFR, is born. It realizes

Chapter III. Analysis of the Existing Problems in Supply Chain

3.1 Information problem in Supply Chain Inventory Management

information, it is impossible to effectively coordinate activities within a supply

(1) Lack of consciousness of whole supply chain management.

As we all know, performance of a supply chain depends on performance of

To judge the achievement of the management, in a supply chain propel evaluation

(2) Ineffective information transfer system.

As mentioned above, in a supply chain information plays an important role in

(3) Untimely and inaccurate products handover status.

(4) Inappropriate inventory management method caused by information inequality

3.2 Operation problem in Supply Chain Inventory Management

Besides information problem, operation problem in inventory management

(1) Ignore the influence of uncertainty on the inventory.

Uncertainty elements exist during supply chain operation process Your

(2) Simplify inventory strategy.

No matter manufacturing industry or logistics industry, inventory control is

(3) Own inventory control technology has run out

There are a variety of inventory control methods, which can be used to

technology in a supply chain, which aims to achieve efficient inventory

3.3 Planning and Strategy problem in Supply Chain Inventory Management

After discussing the problem of information and operation, we go to the part