Integrated inventory valuation in multi-echelon production/distribution systems

Abstract

The pressure to reduce inventory has increased as competition expands, product variety grows, and capital costs increase. This investigation addresses the problem of inventory quantification and distribution within multi-echelon supply chains under market uncertainty and management flexibility. This approach is based on an optimisation model emphasising demand uncertainty and the relevant dimensions of network design as number of echelons, lead time, service level, and cost of processing activities. Overstock quantification enables the understanding of inventory level sensitivity to market uncertainty. A comparison among production sites and storage facilities revealed that higher downstream overstock levels decrease upstream echelons of uncertainty exposition. The contribution of this study relies on management's ability to establish inventory targets for each stocking point according to risk exposure and to promote the optimisation of working capital. Overall, this investigation increases knowledge related to the treatment of demand uncertainty in flexible and integrated supply chains