A collaborative approach to inventory control in distribution systems

Purpose of this paper: The purpose of this paper is to analyze and assess the consequences of applying a collaborative approach when managing material flows in a two-echelon decentralized inventory replenishment system. The analysis and assessment specifically concerns the influence of considering common order-to-deliver process costs, allocation of safety stocks between suppliers and customers and advance demand information from customers. Design/methodology/approach: Traditional inventory control methods have been enhanced and applied in a way allowing them to be used to optimize material flow efficiency from a common supplier and customer perspective. Based on these methods an analysis and assessment of consequences of using a collaborative approach to inventory control has been carried out by simulation. Findings: The result from the simulation shows that traditionally used company focused inventory control solutions are inferior to collaborative-based solutions where the effects on the customer’s as well as the supplier’s operations are considered. Research limitations/implications (if applicable): The study is limited to dyadic relationships in supply chains. Practical implications (if applicable): The paper provides information about possible benefits of developing and using joint optimized inventory control solutions between customers and suppliers. It also provides information about asymmetric benefits for the supplier and the customer. What is original/value of paper: No research covering joint optimization of inventories in dyads has been found