Analysing the relationship between inventory management and sustainable supply chain management

MBA, North-West University, Potchefstroom Campus, 2018There is a scarcity in research articles identifying the relationship between supply chain and inventory management. This study is required to identify the inventory variables that can be used to optimise the supply chain in a multinational business. The indication is suitable in the business environment, as inventory is a contributing part to sustainable supply chain and even more important, inventory is seen as the life line of a company. The study has also researched other factors that have an influence on a business, to ensure customer satisfaction, good sales and sustainable profits. The study defines variables through literature review on variables and metrics in inventory and supply chain management that accurately describe the relationship between the variables. The study also determines which inventory management variables should be optimised in to order to maximise the profits in a multinational company. These investigations would provide benefits in the form of enhancing the competitiveness, capturing the customer demand on time by having inventory available and even expansion of opportunities within a business. In chapter 2 an in-depth literature study was done on supply chain and inventory to finally understand how this can contribute to a better business function by having an improved relationship. The integration of the supply chain is emphasised on the importance, to ensure the flow of the product and service are done correctly. Therefore a supply chain strategy should be formulated with complete and accurate information through proper collaboration upstream and downstream. Supply chain and inventory management correlation was also mentioned by Ralston et al. (2015:63), that supply chain management is a system-wide inventory saving process where inventory managers should make use of data and disseminators. The aim is to contribute to the firm under the supply chain management atmosphere. The objectives highlight that inventory management should provide uninterrupted production, sales, and/or customer-service levels at the minimum cost. The key focus after satisfying the customer needs for supply chain should be to contribute to profitability by smooth processes. Azevedo et al. (2011:870) found that a supply chain promotes best practices in an organisation where it not only provides sustainable business with regards to being competitive but improves the overall profitability of an organisation The bullwhip effect was also elaborated to have a better understanding. This effect provides emphasis on the distribution channels and how they are being impacted by focusing on how agile and quick your reactions needs to be with regards to the market demands. The market demands are sometimes unpredictable which could lead to a negative effect on a business. The bullwhip effect is seen as a phenomenon whereby the forecast shows cases where supply chain inefficiencies and the fluctuations in inventory management is too big to respond on, based on the customers' demands and the upstream supply chain lead times (Lee et al., 2015:116). The foundation of the literature provides guidance on methods that are statically analytics, required on the key elements to optimise the supply chain. Therefore this should provide an indication on supply chain and inventory management to resolve the primary research question, on how the inventory variables impacts a business, and how can those variables be used to optimise the supply chain in a multinational business. Supply chain and inventory management was linked to key literature like Williams & Tokar (2008:224), showcasing the importance of a stock out response. Therefore Chapter 3 indicated why it is vital in the supply chain management, as the level of commodities will either be at a high level, impacting the cash flow of the business or at any specific point where shortages are created which could lead to an impact on income/profit due to not having the products available to sell when the customer needs are raised (Kwon & Suh, 2004:8). The required statically methods are defined to see whether to utilise the methods to assist in contributing to statically significance. Acar and Gardner (2012:847) placed emphasis that a forecast driven model is based on the projected demands and what types of inventory should be kept to satisfy the customer expectations. Closs et al. (2010:56) found that inventory levels that are maintained at an optimal level increase customer satisfaction that could lead to better market penetration due to stock availability and reduced stock outs. Stadtler (2015:26) indicated the supply chain is responsible for the movement of the product but it depends on the inventory availability to move the stock. Therefore based on the literature there should be some kind of connection and understanding about what variables lead to a positive or negative impact on a business. The support of the methods to test the hypothesis with regards to the variables that are available and the methods, show that the combination should provide acceptable building blocks to come to a conclusion through the mathematical findings. These findings and understanding would contribute to the process to provide a possible answer on how important the relationship between inventory management and supply chain is to have a sustainable business. The hypothesis test started by understanding the median sales figure during a specific period as this method is pro-dominantly used to forecast future sales of the business. These past figures provided a result that projected false figures were being used and skew the perspective on the future of the business putting it at risk. Lee et al. (2015:116). This method indicated that the sales over the forecast period, shows significance with regards to inaccuracy on forecast and further methods are required to understand the impact the prediction future sales values will have on a sustainable business. Therefore the mean was tested to see where the middle point of each variable is and the degree of variance over the median. The results contributed by indicating the forecast accuracy and the degree of error the forecast has. The importance was highlighted by the previous test therefore standard deviation was tested as well. The test helps to contribute to the study by calculating the spread of the mean in the sample set. However, seeing that the data set has actual confidential numbers, it was decided to test the coefficient of variation instead, to see the variation in percentage format rather than units. The test of coefficient of variation assesses the function of precision in the data set to illustrate the difference in variation in percentages between the variables. The results indicate the significance of the problem statement. Correlations test was done to understand the relationships and what variables are causal. The Pearson product-moment correlation coefficient was used to find the variables that had a direct or indirect correlation with each other. The Pearson product-moment correlation found that the forecast is very significant in the process. With the correct forecast in place there will be a positive effect on sales and inventory holding that should keep your inventory in line with demands assuring that stock outs are kept at a minimum. (Christopher & Ryals, 2014; Handfield et al., 2015; Mangan & Lalwani, 2016) Seeing that forecast drives a business's inventory levels, Vastag & Whybark (2005:134) model theory was used on inventory turnover. Vastag & Whybark's (2005:134) theory was created to indicate the efficiency with regards to inventory management and how well supply chain is supporting the business. However the study saw a gap in their model and recommended incorporating Williams & Tokar (2008:224) importance of a stock out response. The theory that should be achieved from the data set is to be at a 100% turnover rate if you have sold an amount of units a month including the stock outs that equates to the total demand for the month. Following the previous test, multiple regressions test was done as well to support the variables correlation. Multiple regressions illustrate the influence on the variables might be one or more. The result shows that there is a high significance between sales, quantities on hand as well as back order with forecast, where the results illustrated a high significance between forecast and back orders with sales. The other multiple correlation tests had a high significance between sales, quantity in receipt routing and forecast with back order, back orders with quantity in routing as well as forecast and quantity on hand. The study found significance between the relationship of inventory and supply chain management in the business environment. Not only was this supported through pervious literature, the empirical findings resulted to the same. The study identified that there is one primary variable that has a direct link to optimise a supply chain through inventory management and this is the forecasting process. Hence the importance to optimise and improve the forecasting process is a fundamental commencement as it has a direct impact on the end results. Businesses should focus on improving the forecast process through reliable inputs in the forecast, either making use of new technologies (algorithms, systems) or methods (trend projections, seasonal indexes) to establish a trustworthy indication of future sales. Results of an improved forecast will ensure a positive effect on sales as well as a reduction on stock outs, as the inventory levels would be at the right level, at the right time, at the right place, when the customer requires the products. Business would keep up with the globalised world where the supply chain is optimised as competition is fierce and businesses would capitalise on the products being sold and ultimately contributing to profits.Master