Supply Chain Management Training Course

04 Inventory throughout
the Supply Chain

Almahi Suliman
Procurement and SCM Consultant
Certified Supply Chain Professional by ITC/WTO
Master in Public Procurement Management from University of Turin, Italy
Ex Shell Co and P&G
 We are we going to talk about:
• Inventory definition
• Types of Inventory
• Factors Affecting Inventory Policy
• A Typical Supply Chain
• Where in the supply chain and how much inventory to keep?
• Signs of Trouble in Inventory Management
• JIT Inventory Management
• Improving Inventory Management

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Inventory management is a complex operation that
substantially influences customer service levels and
supply chain costs
There are three common stages of inventory:

 Raw material inventory

 Work-in-progress inventory

 Finished product inventory

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 Types of Inventory
Depending on the main reason for inventory storage,
several types of inventory exist:
 Normal inventory
 Safety inventory
 In-transit inventory (Pipeline)
 Speculative inventory
 Seasonal inventory
 Dead inventory
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 Factors Affecting Inventory
Policy
1) Demand
level of certainty & variability

2) Lead times
how long it takes to get the product to the customer

3) Range & variety of products

higher inventory levels if wide range is needed

4) Required service level

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 Suppliers of
steel raw materials

Suppliers of
components &
other inputs

Suppliers of
assembled
components

Assembler & Final

distributor customer
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 Where in the supply chain and
how much inventory to keep?
? ? ? ? ?

Materials Component Assembler Storage Retailer

suppliers manufacturer
•Cost
•Flexibility
•Service level
•Response time
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 Signs of Trouble in
Inventory Management

The signs of inefficient inventory management can be

easily identified:
 Loss of customers
 Rising numbers of back-orders
 Growing investment in inventory despite the stable number
of back-orders
 Excessive peaks of inventory
 Deteriorating relationships between supply chain members
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Just-in-time management is characterised by:
little inventory, shortened cycle times, improved quality &
eliminated waste & costs in the supply chain

JIT tries to eliminate inventory throughout the entire supply

chain

JIT is based on a number of principles:

 Quality 12
 Applying the ‘pull‘ approach 3
9
 Suppliers are partners
 Vendor co-location with customers 6
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 Evaluation of JIT Management

Advantages of JIT include:

 Lower inventory costs
 Higher quality throughout the supply chain

Disadvantages of JIT include:

 Risk of stock-out
 Great demands on suppliers
 Increased transportation costs

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 Cases when JIT does NOT work

JIT does not work when: STOP

 The customer needs parts quickly

 The company is catering to global markets

 The company operates in fashion & high-tech industries

 The risk of supply or demand disruption is high

 The firms caters to differentiated markets

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 Improving Inventory Management

Inventory management & inventory policy decisions

can be improved by:
1) Realising the importance of the role & the cost of inventory in supply
chain
2) Encouraging relationship management with other supply chain
members
3) Undertaking an ABC analysis of all inventory items
4) Seeking improvements throughout the supply chain
5) Improving demand forecasting
6) Reducing variability by using appropriate IT applications & softwar
7) Encouraging the use of delayed customisation (or postponement)

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 We have talked about:
• Inventory definition
• Types of Inventory
• Factors Affecting Inventory Policy
• A Typical Supply Chain
• Where in the supply chain and how much inventory to keep?
• Signs of Trouble in Inventory Management
• JIT Inventory Management
• Improving Inventory Management

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 Check your understanding
• What are the three stages of inventory?
 Raw material inventory
 Work-in-progress inventory
 Finished product inventory
• Depending on the main reason for inventory storage, what are
the serveral types of inventory exist?
 Normal inventory
 Safety inventory
 In-transit inventory (Pipeline)
 Speculative inventory
 Seasonal inventory
 Dead inventory

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 Check your understanding
• What are the main factors that affecting inventory policy?
• Demand
• Lead times
• Range & variety of products
• Required service level
• List the signs of inefficient inventory management can be easily
identified?
 Loss of customers
 Rising numbers of back-orders
 Growing investment in inventory despite the stable number of back-
orders
 Excessive peaks of inventory
 Deteriorating relationships between supply chain members

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 Check your understanding
What are the basic principles of JIT?
 Quality
 Applying the ‘pull‘ approach
 Suppliers are partners
 Vendor co-location with customers
What are the Disadvantages of JIT?
 Risk of stock-out
 Great demands on suppliers
 Increased transportation costs
How to improve inventory management?
• Realizing the relationship between cost and service
• Encouraging relationship across the supply chain
• Undertake ABC analysis
• Imvpove demand forecast

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