The role of inventory in the supply chain

The supply chain is a system coordinated by organizations, humans, activities, information and resources involved in the movement of a product in a physical and virtual manner from the supplier to the client. The activities from the supply chain transform raw materials and components in a product that is delivered to the consumer or to the user. The inventory, together with the transport, the location of the production spaces and of the storage represent an important factor that influences the performance of the supply chain. Inventory contains the raw materials, the work in process and all the finished products of a supply chain. The changes of the inventory policies can lead to a dramatic alteration of the supply chain’s efficiency and responsiveness. The managers of the firms that build up a supply chain have to identify the main categories of inventory and the way that they can be dimensioned. In every company we can identify cycle inventory, safety inventory and seasonal inventory and we can calculate a series of indicators that can offer an image of the inventory. Traditionally, in the management of supply chain processes, inventory management is challenging because it directly impacts both cost and service. Uncertain demand and uncertain supply make it necessary to hold inventory at certain positions in the supply chain to provide adequate service to the customers. As a consequence, increasing supply chain process inventories will increase customer service and revenue, but it comes at higher cost.