Problems with Inventory Optimization in a Supply Chain

Supply chain management (SCM) is nowadays seen as one of the most important areas that should be developed. An increasing number of specialists from various sectors try to move into solving all kinds of problems connected with the supply chain. Supply chain itself can be characterized as a net that consists of suppliers, manufacturing centers, warehouses, distribution centers, and retail outlets, as well as raw materials, work-in-process inventory, and finished products that flow between the facilities. It is clear that inventories form one of the indispensable parts in business management and therefore they are important in any supply chain as well. The problem rests in the fact that still some members of the chain tries to optimize their inventory individually without any cooperation with others. It usually leads to the local optimum that might have bad effect on the rest of the supply chain. This study investigates the possibilities of using analytical methods of inventory optimization and their suitable interconnection with the simulation methods. It has two main aims. The first one is to specify the factors that may cause some problems in inventory management and order decisions, show how they do it and propose how to manage them. Secondly, different potentialities of analytical and simulation methods (when calculating the optimal inventory level, the optimal order quantity and the optimal interval between two orders) are mentioned. Considering a supply chain that consists of a manufacturer and a retailer, it is shown how differs the local optimum from the global one in cases of no information, part and full information about the consumer's demand. A simple way of using simulation methods for an order determination is presented.