• Demand, supply uncertainty and safety inventory
• Information sharing in inventory
• Information centralization in inventory management • Amazon.com case
1 Demand , supply uncertainty and safety inventory
• Demand uncertainty results from the seasonality factors, the fluctuation as well as forecast errors • Supply uncertainty are caused by any variability existing in the transportation and production processes • There are a trade-off between the level of product availability and holding costs of inventory. • The goal of inventory management is to reduce safety inventory without having a negative impacts on product availability by minimizing the lead time and uncertainty of demand and supply.
2 Information sharing in inventory
Flow of information
Flow of material
Information sharing can reduce the demand and supply uncertainty, thus lowering the required safety inventory
3 Information centralization in inventory management
• Aggregation inventory can reduce the required safety inventory, but increase the costs of transportation and respond times. • Information centralization is to virtually aggregate inventories in all distribution centers. • The order is fulfilled by the closest distributor. In case there is no item available, the information system will request another distribution center to fulfill an order to a customer, thus minimizing the costs of transportation and respond times. • By virtually aggregating inventories supported by IT enabled warehousing application, the safety inventories reduces whereas the level of product availability is high.
4 Amazon.com ’s case
• Amazon builds the multi-tier inventory model that includes