Effect of Inventory on Supply Chain

Objectives of the study When the firms improve their inventory management, what is the reaction of other Factors on

supply chain? How to improve the inventory from cost effective perspective?

Method of Data CollectionIn order to meet the objectives of the study data will be collected from secondary sources. So

the financial reports of a manufacturing company will be obtained.

Review of literature

The Effect of Inventory on Supply ChainAbstract: Supply chain management addresses the management of materials and information

across the entire chain from suppliers to producers, distributors, retailers, and customers. In the past few decades, scholars gave ample attention about the impact of inventory on Supply Chain Management (SCM). Roughly speaking, research on supply chain management has been mainly focused on three major issues. One is the behavior of information flow; The second issue deals with inventory management; The third issue is orientated to planning and operations management. In this paper the second issue, namely inventory management will be discussed. The author will follow the phases of classifying inventory; Identify cost factors; Assess cost components; Calculate EOQ; Giving suggestion and effect of inventory on supply chain will be discussed. The result is going to become clear under the analysis of two alternatives by using MCDM (Multiple Criteria Decision Making) method. The conclusion is when optimizing the inventory management; both upstream and downstream activities will run effectively.

The Impact of Inventory and Flow Planning Parameters on Supply Chain Performance: An Exploratory Study

Abstract: The primary objective of this paper is to study the impact of selected inventory parameters and management techniques on the performance of an expanded and comprehensive retail supply chain. Specifically, we study the sensitivity of supply chain performance to three inventory planning parameters: (i) the forecast error, (ii) the mode of communication between echelons, and (iii) the planning frequency. We achieve this by constructing a detailed simulation model and with data adapted from a case study which we were involved with. The studies conclude that all the three parameters have a significant effect on performance. Increasing forecasting errors and the re-planning frequency decreases service, return on investment, and increases cycle time. Using a mode of communication that facilitates exchange of information between echelons in the supply chain yields a higher level of service when compared to the scenario where the entities in different echelons plan material flows independently.

Effects of Inventory Policy on Supply Chain Performance: A Simulation Study of Critical Decision Parameters

Abstract: This paper investigates the effects of information sharing and early order commitment on the performance of four inventory policies used by retailers in a supply chain of one capacitated supplier and four retailers. Model parameters and operating conditions are emulated from a local business supplying a standard product to its retailers. Through computer simulation and subsequent analyses, we found that the inventory policy used by the retailers, information sharing, and early order commitment can significantly influence the performance of the supply chain. Out of the four inventory policies examined, the economic order quantity rule is found to be the best for the retailers and the entire supply chain, but periodic order quantity and Silver-Meal provide the best performance for the supplier. The sharing of future order plans by the retailer and the supplier is also shown to be the most effective way for reducing the supplier's cost and improving its service level; however, the magnitude of these benefits achieved is less for the retailers. In addition, early order commitment by the retailers is found to be beneficial to the supplier and retailers in reducing their total cost.

Bullwhip Effect in Supply ChainsAbstract: We review a range of methodological approaches to solving the bullwhip problem.

The bullwhip problem is a dynamic consequence of supply chain structures and replenishment policies. The roles of the structure of the demand process, the treatment of time (continuous v discrete), forecasting techniques and lead-times will be reviewed. In practice, and in the theory, a variety of techniques have been used to smooth the dynamics of supply chains. These include, the use of sophisticated forecasting, pooling of demand and inventories, proportional feedback controllers and full-state feedback systems. Multi-echelon supply chains also present a number of interesting innovations. From the traditional, arms-length trading relationships, information sharing, vendor managed inventory and echelon stock policies can be developed. More sophisticated collaboration and co-ordination mechanisms may also lead to altruistic behavior and result in superior performance. The impact of these procedures will be examined. Finally thoughts on new directions in bullwhip research are presented.

Factors Affecting the Level of Trust and Commitment in Supply Chain RelationshipsAbstract: The objective of this research, therefore, is to study factors affecting the level of trust

in supply chain management. Several constructs known to be related to trust in the literature will be explored and tested, such as asset specificity, behavioral uncertainty, information sharing and other constructs in social exchange theory. Finally, this study attempts to explore a relationship between trust and commitment based on Morgan and Hunt's framework. This study proposes that commitment is a key success factor in achieving supply chain integration and trust is a root in fostering such commitment. Although the literature mentions a relationship between trust and commitment (Morgan and Hunt 1994), there is a lack of empirical testing of such relationship in the supply chain management area. This study attempts to test the connection between the theoretical argument and empirical realities.

Inventory and Internal Logistics Management as Critical Factors Affecting Supply Chain Performance

Abstract: This paper focuses on the inventory and internal logistics management problem within a specific Supply Chain (SC) node (a Distribution Centre (DC)). The objective is twofold: to

monitor the performance of different inventory control policies under distinct operative scenarios and to reduce the Internal Logistic Costs (ILCs) by investigating the effect of some critical parameters (i.e., the number of incoming/outgoing trucks from suppliers/to retailers, the number of forklifts and lift trucks, etc.) for increasing the service level provided to final retailers and allocating internal resources efficiently. To this end, a simulation model of a real DC is implemented.

Identification of Factors Affecting Continuity of Cooperative Electronic Supply Chain Relationships: Empirical Case of the Taiwanese Motor Industry

Abstract: This study has developed a research framework that integrates the three perspectives of resource dependence, risk perception, and relationship marketing to identify the factors affecting the continuity of a cooperative electronic supply chain. After constructing a structural equation model, empirical testing on 851 raw material and spare parts suppliers for the Taiwanese motor industry was conducted. All path coefficients in the proposed model were statistically significant, and were as hypothesized. Resource dependence, trust, and relationship commitment are positively related to the continuity of the cooperative electronic relationship. Risk perception is negatively related to the continuity of the cooperative electronic relationship. This paper has theoretically developed an extensive set of interrelationships among these variables illustrating their comparative effects on supplier intention to use the internet for on-line transactions. This empirical study provides consistent support for the proposed business-to-business (B2B) e-commerce acceptance model. The primary contribution of this research is the integration of constructs associated with resources, environmental uncertainty, and relationship marketing, into a coherent model that jointly predicts supplier acceptance of e-commerce.

Supply Chain Management and Supply Chain Orientation: Key Factors for Sustainable Development Projects in Developing Countries?

Abstract: In developing countries, many projects are seeking regional and sustainable development by trying to promote local products and companies. Our paper tries to evaluate Supply Chain Management (SCM) and Supply Chain Orientation (SCO) in the design and implementation of projects aiming at the enhancement of sustainable regional development in two Brazilian Amazonian states. Our main objective is to evaluate if the lack of SCM and SCO is a factor of failure of those projects. The paper begins with the definitions of the main concepts related to the research. Then, it presents the context and analysis of six projects aiming at the enhancement of sustainable development of local communities through the promotion of the forest products by six different collecting co-operatives. The evaluation was obtained by mixing case study and empirical data from the six projects. The conclusion presents the outputs of the analysis, which can be useful to similar projects, especially those related to the design of sustainable and regionally adapted productions and supply chain configurations.

Inventory Performance of Some Supply Chain Inventory Policies under Impulse Demands

Abstract: This paper attempts to study the impact of impulsive demand disturbances on the inventory-based performance of some inventory control policies. The supply chain is modeled as a network of autonomous supply chain nodes. The customer places a constant demand except for a brief period of sudden and steep change in demand (called demand impulse). Under this setting, the behavior of each inventory policy is analyzed for inventory performance of each node. It is found that

the independent decision-making by each node leads to a bullwhip effect in the supply chain whereby demand information is amplified and distorted. However, under a scenario where the retailer places a constant order irrespective of the end customer demand, the inventory variance was actually found to decrease along the supply chain. The variance of the inventory remained constant along the chain when only the actual demands are transmitted by each node. The results also showed that the inventory policy which is best for one supply chain node is generally less efficient from a supply chain perspective. Moreover, the policy which performs poorly for one node can be most efficient for the supply chain. In a way, our results also provide a case for coordinated inventory management in the supply chain where all members prepare a joint inventory management policy that is beneficial for all the supply chain nodes. The results have significant industrial implications.

Vendor-Managed Inventory in the Retail Supply ChainAbstract: Vendor-managed inventory (VMI) is one of the most widely discussed partnering

initiatives for improving multi-firm supply chain efficiency. Also known as continuous replenishment or supplier-managed inventory, it was popularized in the late 1980’s by Wal-Mart and Procter & Gamble. Various published accounts have described VMI benefits that range from cheaper new product introductions to reduced returns at product end-of-life, but the literature often fails to explain just why these benefits have resulted from VMI. To begin, we examine how each partner in a VMI relationship reduces cost and improves service. We provide fresh insights into the approach, along with plausible answers to these questions. We start by explaining why savings so often accrue from VMI. We then describe some underlying technologies required to make the arrangement work. Next, we introduce a simulation model that examines VMI quantitatively in order to understand the effects of key variables. Finally we address several less than ideal conditions often found in consumer electronics industry in order to assess the robustness of the approach.

Inventory Management of Indian Commercial Vehicles IndustryAbstract: This paper presents & analyses statistically the key inventory ratios of Indian

Commercial Vehicles Industry & observes significant company-to-company differences in inventory ratios reflecting differences in inventory management policies.

Book: Inventory and Supply Chain Management with Forecast UpdatesAbstract: Inventory and Supply Chain Management with Forecast Updates is concerned with

the problems of inventory and supply chain decision making with information updating over time. The models considered include inventory decisions with multiple sources and delivery modes, supply-contract design and evaluation, contracts with exercise price, volume-flexible contracts allowing for spot-market purchase decisions, and competitive supply chains. Real problems are formulated into tractable mathematical models, which allow for an analysis of various approaches, and provide insights for better supply chain management. The book provides a unified treatment of these models, presents a critique of the existing results, and points out potential research directions. Attention is focused on solutions that is, inventory decisions prior and subsequent to information updates and the impact of the quality of information on these decisions. Supply chain management research has attracted a great deal of attention over the past ten years. Moreover, it is an area of research that covers an enormous territory involving multiple disciplines. Supply chain management is studied and practiced in both academic as well as by practitioner circles. This is a book that is written for students, researchers, and practitioners across a number of domains including Operations Management Science, Operations Research, Applied Mathematics and Engineering. …. …. Over.

An Introduction to Supply Chain Management RamGaneshan TerryP.Harrison

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

In a very simple supply chain for a single product, raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arbores cent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.

Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Supply Chain DecisionsWe classify the decisions for supply chain management into two broad categories -- strategic

and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes \it are the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.

1. LOCATION DECISIONS: The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisions are primarily strategic, they also have implications on an operational level.

2. PRODUCTION DECISIONS: The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends upon the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

3. INVENTORY DECISIONS: These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose is to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.

4. TRANSPORTATION DECISIONS: The mode choice aspects of these decisions are the most strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.

Supply Chain Modeling ApproachesClearly, each of the above two levels of decisions require a different perspective. The strategic

decisions are, for the most part, global or "all encompassing" in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions.

To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, we divide the modeling approaches into three areas ---

Network Design, ``Rough Cut" methods, and simulation based methods. The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. A simulation method is a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements. However, as with all simulation models, one can only evaluate the effectiveness of a pre-specified policy rather than develop new ones. It is the traditional question of "What If?" versus "What's Best?”.

NETWORK DESIGN METHODS: As the very name suggests, these methods determine the location of production, stocking, and

sourcing facilities, and paths the product(s) take through them. Such methods tend to be large scale, and used generally at the inception of the supply chain. The earliest work in this area, although the term "supply chain" was not in vogue, was by Geoffrion and Graves [1974]. They introduce a multicommodity logistics network design model for optimizing annualized finished product flows from plants to the DC's to the final customers. Geoffrion and Powers [1993] later give a review of the evolution of distribution strategies over the past twenty years, describing how the descendants of the above model can accommodate more echelons and cross commodity detail.

Breitman and Lucas [1987] attempt to provide a framework for a comprehensive model of a production-distribution system, "PLANETS", that is used to decide what products to produce, where and how to produce it, which markets to pursue and what resources to use. Parts of this ambitious project were successfully implemented at General Motors.

Cohen and Lee [1985] develop a conceptual framework for manufacturing strategy analysis, where they describe a series of stochastic sub- models, that considers annualized product flows from raw material vendors via intermediate plants and distribution echelons to the final customers. They use heuristic methods to link and optimize these sub- models. They later give an integrated and readable exposition of their models and methods in Cohen and Lee [1988].

Cohen and Lee [1989] present a normative model for resource deployment in a global manufacturing and distribution network. Global after-tax profit (profit-local taxes) is maximized through the design of facility network and control of material flows within the network. The cost structure consists of variable and fixed costs for material procurement, production, distribution and transportation. They validate the model by applying it to analyze the global manufacturing strategies of a personal computer manufacturer.

Finally, Arntzen, Brown, Harrison, and Trafton [1995] provide the most comprehensive deterministic model for supply chain management. The objective function minimizes a combination of cost and time elements. Examples of cost elements include purchasing, manufacturing, pipeline inventory, transportation costs between various sites, duties, and taxes. Time elements include manufacturing lead times and transit times. Unique to this model was the explicit consideration of duty and their recovery as the product flowed through different countries. Implementation of this model at the Digital Equipment Corporation has produced spectacular results --- savings in the order of $100 million dollars.

Clearly, these network-design based methods add value to the firm in that they lay down the manufacturing and distribution strategies far into the future. It is imperative that firms at one time or another make such integrated decisions, encompassing production, location, inventory, and transportation, and such models are therefore indispensable. Although the above review shows considerable potential for these models as strategic determinants in the future, they are not without their shortcomings. Their very nature forces these problems to be of a very large scale. They are often difficult to solve to optimality. Furthermore, most of the models in this category are largely deterministic and static in nature. Additionally, those that consider stochastic elements are very restrictive in nature. In sum, there does not seem to yet be a comprehensive model that is representative of the true nature of material flows in the supply chain.

ROUGH CUT METHODS:These models form the bulk of the supply chain literature, and typically deal with the more

operational or tactical decisions. Most of the integrative research (from a supply chain context) in the literature seems to take on an inventory management perspective. In fact, the term "Supply Chain" first appears in the literature as an inventory management approach. The thrust of the rough cut models is the development of inventory control policies, considering several levels or echelons together. These models have come to be known as "multi-level" or "multi-echelon" inventory control models. For a review the reader is directed to Vollman et al. [1992].

Multi-echelon inventory theory has been very successfully used in industry. Cohen et al. [1990] describe "OPTIMIZER", one of the most complex models to date --- to manage IBM's spare parts inventory. They develop efficient algorithms and sophisticated data structures to achieve large scale systems integration.

Although current research in multi-echelon based supply chain inventory problems shows considerable promise in reducing inventories with increased customer service, the studies have several notable limitations. First, these studies largely ignore the production side of the supply chain. Their starting point in most cases is a finished goods stockpile, and policies are given to manage these effectively. Since production is a natural part of the supply chain, there seems to be a need with models that include the production component in them. Second, even on the distribution side, almost all published research assumes an arborescence structure, i.e. each site receives re-supply from only one higher level site but can distribute to several lower levels. Third, researchers have largely focused on the inventory system only. In logistics-system theory, transportation and inventory are primary components of the order fulfillment process in terms of cost and service levels. Therefore, companies must consider important interrelationships among transportation, inventory and customer service in determining their policies. Fourth, most of the models under the "inventory theoretic" paradigm are very restrictive in nature, i.e., mostly they restrict themselves to certain well known forms of demand or lead time or both, often quite contrary to what is observed.

Role of Supply Chain Management Decisions in Effective Inventory ControlJournal of the Academy of Business and Economics, March, 2004 by Julius A. Alade, Dinesh K. Sharma, Hari P. Sharma

ABSTRACT: Supply Chain (SC), which involves the configuration, coordination, and improvement of sequentially related set of operations in establishments, integrates technology and human resource capacity for optimal management of operations to reduce inventory requirements and provide support to enterprises in pursuance of a competitive advantage in the marketplace. A coordinated SC integrates procurement, production, and distribution and links together suppliers, manufacturers, distributors, customers and carriers in a network system that allows for effective planning, information exchange, transaction execution, and performance reporting. This paper addresses the structures of supply chain management (SCM) and the activities involved in SCM decisions that help promote profound improvement in efficiency and effectiveness in business operations. In broader context, the paper examines the types of activities involved in SCM decisions; the dynamics of the traditional SCM, the complementarities of technology in achieving effective management of operations through enablers of electronic data interchange (EDI) and quick response (QR) disciplines to implement Just-in-Time (JIT) management techniques; and integrated SC and inventory control as it relates to capacity imbalances and transaction costs.

1. INTRODUCTIONSupply chain management involves the movement of products, services, and information

between and within businesses, the creation of value, and support of enterprises in the pursuance of a competitive advantage in the market place (Kilty, 2000). It involves the cooperation and coordination of activities of all parties for the production and distribution of products to the final consumer with mechanism in place to optimize inventories across the entire supply chain (Haan, et al., 2003; Viswanathan and Piplani, 2001). With effective management of products to create added value and competition among firms move from national to regional and to a global level, new strategies are being adopted by a number of manufacturers and retailers, particularly, in the manufacturing industries to gain a competitive advantage in world markets (Kincade, Casill, and Williamson, 1983). Pressures from low-cost and the new global competitive environment require companies to be more productive, react faster to market changes, and maintain smaller inventories. These developments in the operation of businesses entail significant changes in the traditional ways of manufacturing system (Park, 1994).

The upstream and downstream coordination engendered by supply chain management with the goal of minimizing uncertainty and variations along the supply chain shows that businesses can no longer expect that the objective of business can be met just by becoming efficient in itself. As indicated by Hameri and Palsson (2003), process rationalization and measurement system would need to be implemented to improve the operational efficiency inside a company by reducing lead times and by partnering with upstream and downstream players of the supply chain. The situation requires that for value to reach the customers, efficiency must be evident even in the suppliers, the distribution channel, and all associated activities and partners. Competition is no longer between individual businesses, but between groups of companies that are linked together in a chain for delivering customer value (Chandra, 2000).

The organization of this paper is as follows. In Section 2, we examine the structure of supply chain management using a model of supply chain network that illustrates the flow of products from the vendor to until it reaches the final consumers in the markets. Section 3 looks at the supply chain management decision with a discussion on the link in the decision making processes. In Section 4, the paper discusses the dynamics of supply chain with a focus on traditional approach to supply chain and the implication for market disequilibria in demand and supply. Section 5 examines integration supply chain and inventory management with a model showing functional integration among procurement,

production and distribution for optimum result. Finally, Section 6 provides summary and concluding remarks.

2. STRUCTURES OF SUPPLY CHAIN MANAGEMENTSupply chain is often represented as a network. The nodes in the network represent facilities,

which are connected by links that represent direct transportation connections permitted by the company in managing its supply chain (Shapiro, 2001). The network has four levels of facilities. Product flow downstream from vendors to plants, plants to distribution centers, and distribution centers to markets. In general, a supply chain network may have an arbitrary number of levels. In some instances, products may flow upstream when intermediate products are returned to plants for rework or reusable products are returned from markets to distribution centers for recycling.

For a broader contest, models could be used to demonstrate supply chain network for service companies like banks, insurance, airways operation and other services that operate value chains of networks of facilities for which coordinated planning is required (Shapiro, 2001). As pointed out by Fine (1999), the supply chain structure could take different dimensions depending upon the structure of industry under which it operates. If the industry demonstrates vertical structure and the product architecture is integral, competitive market forces push the structure toward a horizontal and modular configuration (Hanna and Newman, 2001). The forces include among others the following:

* The relentless entry of niche competitors hoping to pick up discrete industry segments.* The challenge of keeping ahead of the competition across the many dimensions of technology

and markets required by an integral system.* The bureaucratic and organizational rigidities that often settle upon large, established

companies.

As put by Fine (1999), these forces typically weaken the vertical giant and create pressure toward a more horizontal, modular structure. On the other hand, when an industry supply chain has a horizontal structure, a different set of force pushes the system toward more vertical integration and integral product architecture. The forces include the following:

* Technical advances in one subsystem the can create opportunity in making scarce commodity in the chain, giving market power to its owner.

* Market power in one subsystem that encourages bundling with other subsystems to increase control and more value.

* Market power in one subsystem that encourages engineering integration with other subsystems to develop integral solutions.

The dynamics of supply chain discussed above demonstrates the complexities in its management organization. The structure revolves in a cycle between integral/vertical and horizontal/modular forms. With other uncertainties in the market, the speed with which the structures complete a cycle is influenced by the clock-speed of the industry. Significant to the management of supply chain is the possibility that each product in the system could have a unique set of nodes and flow paths associated with it. For example, a single product may exhibit alternative supply chains, thus creating opportunity for cost reduction through selection of optimal supply chains for each material. Notwithstanding the possibility of channels of alternative, in general, the supply chain network system follows path of product movement from vendors to plants, plants to distribution centers, and

distribution centers to markets with transition from each node recognizing the significance product service and delivery time, cost control, and inventory management.

3. SUPPLY CHAIN MANAGEMENT DECISIONSupply chain management has emerged over the past few years as the key to success in the

global economy, regardless of industry or company size. Its premise is simple: operational strategies should be designed and managed around customer needs. Imagine three links in the supply chain--distribution, production, and procurement/materials (Cloud, 2000). The link in the decision making process has not been particular. Other studies have used other approaches such as procurement, production, and distribution, or vendors, plants, distributions, and markets (Kilty, 2000; Shapiro, 2001). Notwithstanding the approaches, the focus has been how companies can add value to their products as they pass through supply chain and deliver the products to geographically dispersed markets/customers in the correct quantities, with the correct specifications, at the correct time, and at a competitive cost.

Distribution--It is the closest ring to customer demand, the first link in the supply chain flow path that ensures that product and service must be available when the customer wants and needs them. According to Kilty (2000), distribution has evolved from providing a secondary but necessary role of warehousing and transporting goods to being a critical link in delivering products to the marketplace within the supply chain. It is a key factor to achieving the service-level goals set forth for the various classes of customers of the enterprise. To achieve these goals, process efficiency and accuracy are required, hence producers must be able to source materials, produce goods, and deliver the right products to the right markets on time. This means that distribution networks need to accept shorter lead times, deliver across the globe, and provide flexible product options at lowest cost.

Production--As part of the flow-path for supply chain management, production should be aligned with distribution so that we can have a production system that is capable of moving small or large quantities and standard or custom orders. However, most companies produce goods according to forecasts, not orders. Part of the reason is that traditional costing and decision-making tools can't accommodate the faster, customer-oriented system. To solve this problem, companies need to stop using standard costing for internal decision-making, and develop throughput accounting, a system that focuses on orders filled rather than goods produced (Cloud, 2000). Standard costing productivity measurements classify inventory as an asset and thus encourage production regardless of the number of orders. As a result, standard costing metrics simply do not fit a production process that emphasizes speed, flexibility, and low inventory. Throughput accounting, on the other hand, captures conversion speed, i.e. order-to-delivery cycle time and flexibility, i.e. the number of orders filled on time.

Procurement/Materials--To develop and manage system that support fast, on-time distribution networks and quick, flexible production processes, companies must transcend traditional organizational boundaries and include suppliers in the planning and administration of operations. As the teams develop, key information, viz., forecasts, product plans, and design information should be shared with suppliers.

4. DYNAMICS OF TRADITIONAL SCMCompanies operating within a traditional supply chain are likely to have procurement,

production, and distribution all operating generally within a departmental structure basis and responding from individual unit to conflicting performance measures. For example, under sub-optimal

operating condition model, where functional units focus on individual performance results, procurement would be interested in lowest cost if it means buying raw material in larger volumes than is necessary. Also, production would be interested in maximizing machine utilization, resulting in buildup of work in process and finished goods inventory. In the same way, distribution would be focus on high service levels and preventing stock-outs.

The consequence of pursuing such traditional approach to supply chain is that activities would not be integrated and inventory would become a disequilibria factor in demand and supply. For example, in a typical consumer products company, marketing managers determine sales strategies for the next period (future). Their plan is passed on to the manufacturing managers who are asked to develop an appropriate production strategy. The joint marketing and manufacturing strategy is then passed on to logistics managers who are given the responsibility of developing appropriate transportation, warehousing, and inventory strategies to meet it. Thus, although the logistics managers may seek to minimize total logistics costs, larger issues of integrating strategies for logistics manufacturing, and even marketing are not addressed (Shapiro, 2001). Also, comprehensive and rapid information transfer between the sectors of the pipeline from retail point-of sale back upstream is not in place or implemented. As a result, the overall supply chain strategy of the consumer products company may be significantly sub-optimal.

When the flow path of the supply chain is not integrated, the organization will find it difficult to achieve its goals and objectives, particularly in maintaining optimum control in its transaction costs and inventory management. Often the success of an organization depends not only on how well each sector performs but also on how well the sectors in the organization interface with each other. For instance, unless logistics, production, and inventory management are well coordinated and integrated, the marketing segment of procurement may promote goods or service that operations cannot profitably deliver, or operations may turn out goods or services for which there is no demand. The consequence of this is overall slack in the organization resulting into inadequately managed transaction costs and excess inventory. Thus, new strategies need to be adopted to gain competitive advantage in world markets. The operation of businesses with pressures from low-cost, global sources require significant changes in the traditional ways from which businesses are managed. The new direction requires companies to be more productive, react faster to market changes, and maintain smaller inventories with low transaction costs.

Part of the strategy for success in supply chain management decision is the adoption of just-in-time management and lean production. The adoption of this strategy is to help eliminate wasteful and expensive inventory. Integration allows for coordinated planning, real time exchange of information, bidding and negotiation, transaction execution, and performance reporting. Integrated supply chain will help envelop all of the communications tools available from enablers of EDI and quick response (QR) to the internet. The discipline will require participants, both upstream and downstream, to implement new technologies and use the tools to:

* Improve service to demanding, inventory-lean stores by providing them with the goods that consumers actually want in a timely manner;

* Reduce inventory and lower attendant costs; and* Free up capital for other purposes and projects.

As a result of the conscious effort of businesses to integrate the various units of business operations, there is more opportunity to coordinate activities across the supply chain for competitive advantage.

5. INTEGRATED SUPPLY CHAIN AND INVENTORY MANAGEMENTIntegrated supply chain require that each segment of the supply chain i.e., procurement,

production and distribution as shown in Figure 3 be functionally integrated for optimum result. Today's technology is the key that allows the supply chain to become integrated and therefore reduces the inventory requirement. Some examples are the electronic transmission of advance ship notices (ASN) to advise customers of the contents of a shipment and its expected delivery date. The transmission of purchase orders via electronic data interchange (EDI) can provide more timely and accurate data to suppliers, allowing for more efficient information in management and production planning (Kilty, 2000). Also, freight tracking systems now are being used in the management of the movement of goods, which provides flexibility that can be used to react to rapidly changing internal and external needs such as changes in production schedule or changes in customer product delivery requirements.

It is important that companies develop a supply chain management strategy that is consistent with their overall business strategy. A key tool to achieving this is to develop a supply chain "diagnostic method" that can be used to improve operations and reduce inventories (see Kilty, 2000). The first consideration here is for the company to examine and understand their supply and demand planning. This is the key to optimizing resources as well as the timing of activities associated with procuring raw materials and producing and distributing products. The next step is to begin the process of transitioning from a functional organization to a process organization. And finally, as companies reorganize to be process driven, then the performance measures for the various functional departments should be changed to support the overall supply chain management goals. Some examples of the measurements would include perfect order fulfillment, customer satisfaction, product quality, total supply chain cost, inventory days supply, and cash-to-cash cycle time.

The process described above will not achieve optimum result desired by supply chain if each subsystem works independently. To eliminate wasteful and expensive inventory, supply chain needs to be integrated as illustrated in the integrated model (Figure 3) below. As put by Shapiro (2001), supply chain refers to integrated planning. First, it is concerned with functional integration of purchasing, manufacturing, transportation, and warehousing activities. It also refers to spatial integration of these activities across geographically dispersed vendors, facilities, and markets. And finally, it refers to inter-temporal integration of these activities over strategic, tactical, and operational planning horizon. In the study by Porter (1985), it is pointed out that effective linkage (integration) among activities (or subsystems) in company's can lead to competitive advantage in two ways: (1) optimization, and (2) coordination. This proposes that a firm must optimize linkages in a way to reflect its competitive advantage. It also reinforces that the ability to coordinate linkages is significant to reducing costs or enhances differentiation. Advances in information technology (IT) have helped facilitated the developments in integrated supply chain planning and management.

A major goal of the integrated supply chain is the coordination of the logistics, distribution and production, and production management in a direction that will optimize the value chain of the company and help to minimize transaction costs and inventory sock keeping unit (SKU) level. Conventionally, we know that a company may hold inventories of raw materials, parts, work-in-progress, or finished products either to hedge against the uncertainties of supply and demand or to

take advantage of economies of scale associated with manufacturing or acquiring products in large batches. Similarly, inventories are considered essential to build up reserve for seasonal demands or promotional sales (Shapiro, 2001). However, with the new reengineering in management and companies not just adopting just-in-time inventory practices but engaging in more integrated supply chain management, attention has recently been more focused on creating processes that reduce or eliminate inventories, mainly by reducing or eliminating uncertainties that make them necessary. These efforts have been motivated in part by the recognition that metrics describing the performance of a company's inventory management practices can be important signals to shareholders regarding the efficiency of the company's operations and hence its profitability.

The maintenance of lower transaction costs and optimum inventory control management is not without some costs and tradeoff. Past experiences have shown that managing inventory effectively in our economy and the business environment is often difficult. For example, in 1993, Dell Computer's stock plunged after the company predicted a loss. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory write-downs. Also, in 1993, Liz Claiborne experiences an unexpected earnings decline as a consequence of higher-than-anticipated excess inventories. And in 1994, IBM struggled with shortages in the ThinkPad line due to ineffective inventory management (Simchi-Levi et al., 2000). In recognition of these difficulties and the urgency to pursue effective integrated supply chain management, Barsky and Ellinger (2001) pointed out that to generate lower levels of inventory and fewer stock-outs for customers, suppliers and manufacturers may have to hold significantly more inventory and expend considerably more staff time to administer the program effectively.

6. CONCLUSIONIn this paper, we have examined the structures of supply chain management (SCM) and the

activities involved in supply chain decisions that help promote profound improvement in efficiency and effectiveness in business operations. The paper has discussed critical issues regarding how the pressures from low-cost and the new global competitive environment require companies to be more productive, react faster to market changes, and maintain smaller inventories.

The issue of supply chain management is discussed with the implications of the vertical and horizontal structure of industry and its relationship to procurement, production and distribution in the supply chain process. In the discussion of supply chain management decision, the study points out that operational strategy should be designed and managed around customer needs with a focus on how companies can add value to their products as they pass through supply chain and deliver the products to geographically dispersed markets/customers. With inventory management as a major factor in operational efficiency, the implications of supply chain integration and non-integration were discussed. The study shows that through integration, and by partnering with upstream and downstream players of supply chain, companies have demonstrated improved ability to manage and deliver products to customers in the correct quantities, with the correct specifications, at the correct time, and at a competitive cost. Also, a major lesson for entrepreneurs from the implementation of supply chain is that businesses that focus only on cost containment will miss out on revenue-generating opportunities. Similarly, it is observed that efficient operations will not lead to superior profits if companies' products are being manufactured in plants with outdated technologies that are poorly located relative to companies' vendors and their markets.

Considering a Third Party for Supply Chain ManagementAnna Albright

Third-party logistics companies can allow an organization to focus energy on its core competencies and speed the process of getting a final product to market while saving production costs. Turning the logistics of procurement, manufacturing, and the distribution of goods over to a third-party allows your business to take advantage of already established processes. A logistics company has the advantage of an established vendor list, a manufacturing plant, a storage facility, and a distribution center, so it is well-equipped to provide the manufacturing support that may save an organization time and money. They are services that can help an organization with order fulfillment:

Demand forecasting: A logistics company can compile data to forecast demand in order to determine an appropriate rate of replenishment. Solid demand forecasting reduces waste and minimizes inventory that remains in the warehouse. Smart spending on inventory replenishment preserves cash flow.

Supplier management: Logistics companies often employ experienced individuals who have the negotiating expertise and established vendor relationships to secure favorable pricing on the raw goods that go into manufacturing. Once the item is manufactured, the product is then inspected and checked for quality assurance.

Warehousing: Although warehousing includes the storage of the product in a clean, dry facility until the merchandise is ready for distribution, other services such as picking and packing, assembly, receiving, shipping, and inventory management are often available.

Administrative: A logistics company not only deals with the production and distribution of the goods, but also the paperwork involved, such as coding the product to keep track of what is moving in and out of the plant; invoicing; documentation of product orders, up sales, and product issues; export management, which involves screening, documenting, and recording transactions within the limits of the law; Web tracking of inventory and status of merchandise transactions; and project management services.

Comparison shopping is always important and highly recommended when looking for a logistics company. Price is not necessarily the only consideration to take into account: Make sure the company has experience in manufacturing and distribution in your particular industry

and product line as well as a positive reputation. Find out the length of time the company has been in business. If your organization plans to export overseas, does the company have international export

experience? What is the turnover and training provided for telephone representatives because those individuals

will be interacting with your customers? Can it provide a temperature-controlled environment for the storage of your particular merchandise

if needed? What is its on-time delivery history and rate of distribution?

Compare the expenditures involved in producing and distributing your product vs. the cost of using a third-party logistics company. The outlay can sometimes be offset by the savings from not having to hire additional personnel, purchase additional technology, or make capital investments in a

manufacturing facility, warehouse, and transportation. Logistics companies can typically provide this service at a more cost-effective rate because of the volume with which they work.

Supply chain - from Sea to StoreBy,JoanneEllulPublication:RetailWeekDate: Friday, July 9 2010

Within six months, Sainsbury's will manage its complex global supply chain of about 4,000 suppliers by trading on a single platform, consolidating several legacy systems. This is just one example of why organised and well-functioning supply chains are crucial to retailers with overseas suppliers and international locations. And electronic systems - like the single trading platform to be used by Sainsbury's - are providing the answer to the growing complexity of global supply chains. It's a common problem. 85% of companies expect the complexity of their supply chains to grow significantly by 2012, according to a recent report by management consultancy PRTM.

A primary concern for retailers is to gauge customer demand in order to manage inventory effectively. "The main challenge for retailers is the uncertainty and volatility of customer demand. Retailers have been and will structure the supply chain to forecast customer demand and there will be more emphasis on building customer retention and loyalty," says PRTM UK supply chain innovation practice director Gordon Colborn. After all, retaining customers is cheaper than acquiring them. For its report, Global Supply Chain Trends 2010 to 2012, PRTM surveyed 350 manufacturing and services companies across various industries, including retail, and discovered that 74% of companies found the major challenge to supply chain flexibility is demand volatility and/or poor forecast accuracy.

Harnessing data: Technology that harnesses data from store level can help solve the problem of accurate forecasting to reduce waste in supply chains. Software provider RedPrairie's flowcasting and inventory planning systems forecast and react to customer demand by analysing each store's point-of-sale and inventory data. "Traditional supply chains' demand planning systems have tackled the retail supply chain from the angle of forecasting down from manufacturing to distribution, not gauging whether the right amount of product is in the distribution centre to ration to stores," says RedPrairie senior vice-president and executive director Andrew Kirkwood.

The inventory planning system means stock levels can be changed up until stock is allocated to a store in a lorry, Kirkwood says. Using store-level data means demand is more consistent at each stage of the supply chain, as businesses, including manufacturers and suppliers, are working from the same forecast numbers. One retailer that sells groceries and general merchandise, which has inventory travelling huge distances, is using this system. "Accurate forecasting reduces stock excesses and shortages are reduced," Kirkwood explains. He adds that data is coming from multiple sources along the supply chain: "In the past year or two, a more pool-based model has been used where data is being pulled from manufacturer as well as distribution centre."

Harnessing store-level data means the system can be refreshed daily based on store results. The need for up-to-date data is crucial in inventory planning and is a challenge retailers must overcome. This is where technology can only go so far in optimising the supply chain. "Technology has a place in reducing response-time in the supply chain and accurately forecasting sales. However, the

business processes the system sits on have to be sound," Colborn says. Retailers must make sure technology optimises sound business processes. Sainsbury's plans to introduce monitoring of food sales on a minute-by-minute basis, allowing delivery schedules to be updated where necessary, early next year. "This will allow it to react to any changes in buying patterns on the same day rather than overnight. It will be able to make better decisions on where to send stock," says David Grosvenor, managing director at supply chain technology supplier Wesupply.

Collecting data is traditionally a batch process, where there are periods during the trading day when information is collected from stores. "Distribution centres break down the store data based on information that is four to five hours old," Grosvenor adds. Sainsbury's will go live with Wesupply's single electronic trading platform in October this year and this will be rolled out over the next six months across Sainsbury's complex supply chain of about 4,000 suppliers. The platform handles, stores and analyses trading data, providing services like order compliance, invoice matching and supplier performance data.

Automated checks - like whether the quantities specified in the order are being met or are being delivered at the right time - means fewer errors in goods arriving and advanced notice if there are problems or shortfalls. Greater visibility into trading data heightens stock control and takes inventory waste out of the supply chain, Grosvenor says. Sainsbury's will replace its three to four systems with this single solution to monitor the status of orders across its entire network and manage the availability of products.

Outsourcing is another way to reduce costs and can be used to simplify supply chain management. "We're seeing a growing demand in outsourcing a fully managed service. This means retailers don't have to manage a massive infrastructure and bespoke their software. It lowers their costs," Grosvenor says. So Sainsbury's will optimise technology by harnessing real-time data from stores and this emphasis on the logistics processes that underlie technological systems is integral to supply chain success.

Urban efficiency: Urban Outfitters paid similar attention to its logistics when implementing a warehouse management system from Manhattan Associates within its UK business in September last year. The system receives advance shipment notices from vendors, which allows the retailer to better plan distribution of incoming shipments.

Logistics processes, like cross docking, where items are transferred directly from an incoming vehicle to an outbound vehicle, and cycle counting, where a small subset of inventory is counted on any given day, feed into the system. Urban Outfitters can fulfil orders more quickly and accurately, decreasing handling time and inventory levels, and sending stores accurate information on shipments. Urban Outfitters chose the technology to deal with high volumes of small orders and it has seen an improvement in the speed of supply chain delivery. Manifesting and invoicing time dropped 80% and turnaround on orders went from three days to less than 24 hours.

Supply chain systems can help manage complex and differing processes. Retailers will manage their costs more effectively and there will be an ethical focus when selecting transport methods, Kirkwood says. "All companies are moving off-road and investing in multi-modal transportation. Such a complex process of organising different schedules needs systemising," he adds.

As for the future, Colborn sees retailers focusing on design of the supply chain and moving away from UK-centricity. "Regional hubs in other countries are needed to optimise global supply chains. Retailers will find their product offerings in international locations shouldn't be the same. Tesco has been good at differentiating its product offering in different countries," he adds. Global growth is on the agenda, with three-quarters of companies in the PRTM survey expecting an increase in the number of international customer locations. "For any UK-based retailer to secure growth they must build a global supply chain network," Colborn says.

So whatever system they choose, retailers will need to optimise their supply chain to ensure success.

Global supply chains, 85% of companies expect the complexity of their supply chains to grow significantly by 2012 47% of companies plan to develop processes for improved demand sensing - the market rate of

demand in real-time - rather than having to wait for after-the-fact reporting 74% of companies found the major challenge to supply chain flexibility is demand volatility and/or

poor forecast accuracy 66% expect a higher number of products or variants will be required to fulfill customer

expectations and counter shrinking revenuesSource: Global Supply Chain Trends 2010 to 2012, PRTM.

Make the Most of Supply Chain AnalyticsBy Andrew Hines July 25th, 2007

Dell, Apple, your local grocery store — all these companies share a common concern: supply chain management. From the initial forecast to final delivery, coordinating activities in a supply chain is a big challenge. But if you do it right, the ROI is huge. Usually the challenge boils down to building the right capability in your organization, which means having the right people and the right tools. Investing in a new software package and a team of supply chain analysts, however, is a serious undertaking, and there’s no one-off solution. Should you focus on forecasting, inventory optimization, logistics, and supply chain simulation? An article by Sridhar Tayur in Supply & Demand Chain Executive points out that inventory optimization is probably the best place to start, and gives a $1 billion example to back it up:

Given the enormous benefits at stake [by optimizing inventory], it’s no surprise that a recent survey by Aberdeen Group places inventory management software at the top of the list for supply chain technology investments. Within that category, the highest priority is clearly multi-stage inventory optimization, which generates optimal inventory levels for each item across each of the stages or tiers within an organization’s supply chain network. More than 80 percent of respondents cited multi-stage inventory optimization as a top priority, nearly twice the number who named any other type of inventory management technology. [...]

A case in point is Deere & Company’s Commercial & Consumer Equipment Division, which implemented a solution to optimize inventory levels for more than 300 commercial and consumer equipment products held at 2,500 North American dealer locations, plants and warehouses. To do so, the software considers 52 million variables and 26 million constraints. In four hours each week, the

system generates optimal targets [target inventory levels] that have enabled Deere to reduce inventory by more than $1 billion, while significantly improving on-time shipments from factories and maintaining customer service levels at 90 percent or better.

The $1 billion in reduced inventory means that Deere is now free to invest that much cash elsewhere in the business. With that in mind, a few million dollars doesn’t seem like too much to invest in optimization software and supply chain analysis team.

Planning for Disaster: Keeping Your Supply Chain SafeABSTRACT: September 11th sounded a wake-up call for global enterprises caught with kinks in

their supply chain. There may be no sure way to plan for a disaster of that magnitude, but for business continuity, companies need to work on the things they can control. Now, a year later, companies around the world are re-examining and making adjustments to the way they do business. Some are rethinking decisions to concentrate operations and large numbers of employees in single locations. Others that relied on just-in-time inventory management practices are considering stockpiling "just in case" inventories of parts, materials and finished goods. But just avoiding disruption in the supply chain is not about crisis management. Read the paper to let yourself known about what crisis management propose in supply chain.

Supply Chain Inventory Management and the Value of Shared Information

ABSTRACT: In traditional supply chain inventory management, orders are the only information firms’ exchange, but information technology now allows firms to share demand and inventory data quickly and inexpensively. This paper studies the value of sharing these data in a model with one supplier, N identical retailers, and stationary stochastic consumer demand. There are inventory holding costs and back-order penalty costs. It compares a traditional information policy that does not use shared information with a full information policy that does exploit shared information.

Dell’s Supply Chain Management StrategyPublished: Jan 2008

ABSTRACT: The focus of this case study is the supply chain management practices of Dell. Dell has been following its unique ‘direct build-to-order’ sales model for more than 20 years. Customers can plan their own configuration and place orders directly with the company via the phone or its Web site. Over the years, Dell’s supply chain efficiencies and direct sales gave it a competitive advantage.

CAN DELL REGAIN ITS MARKET LEADER POSITION FROM HP?In 2006 however, Dell faced several problems. Many customers complained about long delays

in supplies. Recall of Sony battery cells in its laptops brought undesirable media hype to the company. Increasing discontent of customers led to a slowdown in sales. Consequently, Dell lost its market leadership to Hewlett-Packard Co. (HP). Industry analysts felt that, with Dell’s competitors also improving their supply chains and matching Dell’s direct model, the company had been losing its competitive edge. Dell will have to bear additional costs with its foray into retail distribution thereby

minimizing its cost advantage. Besides, profit margins of Dell will drop further since it will have to offer incentives to compete with HP in retail stores. Though Dell spruced up its product design and range but Apple is clearly far ahead of it. Many experts feel that such new initiatives will only distract Dell from its supply chain operations.

This case study covers the following issues: Examine and analyze Dell’s Direct model, its basic working, success and future challenges Typical Working of Dell’s Supply Chain and future supply chain challenges Highlights Dell’s evolving Supply Chain practices and strategy and steps being taken by it to

recapture its lost market leader position

Case Snippets/Update

Dell’s market share in U.S. and Worldwide (in Q1 2009) compared to other top PC makers

In year 2010, PC sales are expected to rise 12.6 percent, according to research firm Gartner.

ABC INVENTORY CLASSIFICATION (SELECTIVE INVENTORYCONTROL-SIC)

This is a popular inventory control technique, which is an adaptation of Pareto's Law. In a study of the distribution of wealth and income in Italy, Vilfredo Pareto, an Italian Economist, observed in 1897 that a very large percentage of the total national income and wealth was concentrated in the hands of a small percentage of the population. Believing that this reflected a universal principle, he formulated the axiom that the significant items in a given group normally constitute a small portion of the total items in the group and that majority of the items in the total will, in the aggregate, be of minor significance. Pareto expressed this empirical relationship mathematically. But, the rough pattern is 80 per cent of the distribution is accounted for by 20 per cent of the group membership.

The 80-20 pattern holds true in most inventory situations, where it can be shown that approximately 20 per cent of the items account for 80 per cent of total cost (unit cost times usage quantity). In the typical ABC-Classification, these are designated as A-items, and the remaining 80 per cent of the items become B's and C's, representing the 30 per cent that account for 15 per cent of cost, and the bottom 50 per cent that account for 5 per cent of cost. The idea behind ABC-Classification is to apply the bulk of the limited planning and control resources to the A-items, "where the money is", while, the expenses on the other classes that have demonstrably much less effect on the overall inventory investment, is kept to a minimum. The ABC control concept is implemented by controlling A-items "more tightly" than B and C items, in descending order.

Today, the principle of graduated control stringency may be somewhat difficult to comprehend, But, in pre-computer days the degree of control was equated with the frequency of reviews of a given inventory item's record. Controlling 'tightly' meant reviewing frequently. The frequency of review, in turn, tended to determine the order quantity. A-items would be reviewed frequently and ordered in small quantities, in order to keep inventory investment low. A typical ABC-classification, which is an acronym for "Always Better Control", is graphically represented below.

The rationale of ABC-classification is the impracticality of giving an equally high degree of attention to the record of every inventory item, due to limited information-processing capacity. With computers now available, this limitation has disappeared and the ABC concept tends to become more or less irrelevant.