The impact of assured supply inventory policies

Abstract

A case study is presented of a successful quick serve fast food restaurant chain that uses inventory throughout the supply chain as a buffer against uncertainty in supply and demand. This is a common operational strategy in many industries, but it limits options for the supply chain to become more agile, adaptable, and aligned to the dynamic needs of the enterprise. Trade-offs between transportation and holding costs are illustrated. The drawbacks of assuring supply by maintaining inventory at the distribution center level are discussed. Supply chain alternatives are presented including lateral transfers, forward warehouses, alternative modes of transportation, and multiple suppliers. An analytical approach is presented which provides a total relevant supply chain cost at the distribution center level. The approach is illustrated in the decision between two alternative transportation modes with different average lead times, lead time variabilities, and transportation costs.