APPROACHES OF MODELING FOR SUPPLY CHAIN MANAGEMENT

Although supply chain reliability has been greatly improved through new technologies, achieving cost savings in the supply chain requires more than simply incorporating new tools into the old structure. The key decision-making in supply chain management belongs to inventory management. The paper describes the problems inherent in mixing optimization and classical inventory models. It begins with a review of classical inventory theory, strictly speaking, (r, Q) model. Following that, approximations of inventory costs and plans that can be incorporated in optimization models are presented. The discussion focuses primarily on strategic and tactical planning problems because models for these problems require new constructs to achieve integrated decision-making.