Supply Chain Inventory Level with Procurement Constraints

Since inventory is one of the major factors that affect the performance of supply chain system, the effective reduction of inventory can reduce effectively the cost level of the total supply chain. Therefore, inventory management has been one of the important means to optimize the operation of purchasing process and enhance the competitive advantage of the whole supply chain. Especially, when procurement constraints exist, the dynamic change of inventory level must be inspected and monitored in real time. Considering the (s, S) policy in inventory management, this paper established a model of the change of inventory level in supply chain system. Then, the change of inventory level with and without procurement constraints was analyzed respectively, and their expectation and variance was provided. Consequently, the order point can be determined accurately to reduce the inventory level and operation risk.