Inventory Management more than Mathematic Models

The inventory has been present since man started to use natural resources from the planet. However, it is not possible to sustain that its administration is a solved problem. Inventory management has been object of study of management science and operations research, industrial engineering, production, logistics and supply chain management.

Inventory management is summarized as the activity which guarantees stable availability of products demanded by customers, coordinating sales functions, production and distribution in relationships intra and inter companies in order to satisfy the objective market at a rational cost and taking into account the variability and uncertainty of processes.

Inventory systems have been treated mathematically by the model of economic order quantity request (EOQ), which is still a reference, a century later, for the rest of developed models.

Nevertheless, the inventory management is multifactorial. The global situation of companies and logistic systems requires the analysis of critical aspects, with the purpose to improve the return of capital invested, increase ROI, decrease of work capital to support operations and/or expansion processes, pressure to improve the services for customers, pressure of market to decrease the time period to customers in the last mile and the current increase of lead time, its variability and freight payments cost. More, the COVID-19 virus has definitely been the personification of VUCA (Volatility, Uncertainty, Complexity, Ambiguity), affecting every plan in every point of the supply chain worldwide. Most decisions are trade-off decisions.

In order to face such scenario, companies have established the process of quantitative planning of inventory parameters, focused on mathematical models and the calculation of products quantities and parameters, supported by systems like ERP, MRP, MES and other software, including excel sheets. However, mathematical models are still vulnerable in this case, by multiple factors.

There are some mathematical models to calculate inventory parameters focused on the company or the supply chain, including collaborative tools, simulation, mapping and modelling. They are the quantitative support of inventory systems, which try to find the inventory balance or optimization. Inventory management includes elements influencing the result of inventory strategies, such as the definition of assortment policy, the classification and codification systems, demand management and data quality, lead time management, physical and technological infrastructure, the staff and system of primary registries supporting everything. When we see the Bullwhip Effect result of lack of communication between tiers in the supply chain in despite of the hyper connectivity in the Industry 4.0, we see that the problem is not only mathematics, the numbers could be perfect, calculated by the best tools; but then we have the people, the organizational culture, the institutions, the lack of cooperation, the lack of circularity, the transactional contracts, and many others that cause numerous disruptions.

Based on this idea, every element of organization and management influencing the inventory effectiveness performance must be taken into account, highlighting the objective of high availability and inventory turns results, both at the same time. An acceptable inventory management rest on a proper functioning of interrelationships in logistic system processes. The inventory is the result symptom of their functioning, not the cause of problems.

CSSC and CPIA programs give us the overall view of what to do in the real world, in the practice, to be sure that the mathematical models will help us to be successful.

Presented By:

Prof. Dr. C. Igor Lopes Martínez

Associate Professor

Head of the Department of Industrial Engineering / Faculty of Industrial Engineering

Head of the Discipline of Process Management and Supply Chains

Technological University of Havana José Antonio Echeverría - CUJAE

Inchainge Education Associate / Certified Trainer

VCARE Academy Regional Representative / CSSC Certified Instructor

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