Reducing inventory through supply chain coordination and improved lead times

Abstract

In supply chain management, it is commonly held that reducing lead times and minimum order quantities (MOQs) from suppliers can drive down the customer's inventory levels substantially. Customers providing a consumption forecast along with a commitment to a supplier to cover some portion of raw material, work-in-process, and finished goods in exchange for reduced lead times and lower MOQs can support that goal; however, there does not exist a general method for identifying and optimizing the terms of these agreements. Existing literature describes techniques that involve vendor-managed inventory and other lead time reduction strategies, but none exists where the customer manages the ordering and replenishment policies from a vendor stock. In this thesis, we investigate a method for a company to reduce lead times and inventory level while maintaining or improving their customer service level. To do so, we introduce a new process for the business where a customer identifies the optimal subset of parts with their corresponding lead time and stocking policy trade-offs to drive inventory reductions relative to the existing state. We describe the benefits for both supplier and customer and specifically focus on the investigation of the opportunity for the customer and the appropriate segmentation of suppliers and parts for consideration in a pilot leading to full implantation. We expect this new approach to substantially reduce the inventory at the customer while improving the suppliers' ability to optimize their own manufacturing planning and setup schedules.