Centralised inventories

One of the arguments for centralised inventory is that advantage can be taken of the square root rule . Whilst an approximation, this rule of thumb provides an indication of the opportunity for inventory reduction that is possible through holding inventory in fewer locations. The rule states that the reduction in total safety stock that can be expected through reducing the number of stock locations is proportional to the square root of the number of stock locations before and after rationalisation. Thus if previously there were 25 stock locations and now there are only four then the overall reduction in inventory would be in the ratio of to VT, or 5 2, i.e. a 60 per cent reduction. 

Centralising inventories across multiple countries can hold advantages in terms of inventory-holding costs and inventory levels that are especially relevant for high-value products. On the other hand, internationalisation may lead to product proliferation due to the need for localisation of products and the need to respond to specific local product/market opportunities. 

In order to remain competitive in the international business environment, companies seek to lower their costs while enhancing the service they provide to customers. Two commonly used approaches to improve the efficiency and effectiveness of supply chains are focused factories and centralised inventories. 

A second dimension that needs to be taken into consideration is that of distribution lead times. Here, we focus on physical distribution from warehouse to customer, and not on the inbound pipeline. Centralising inventory may lead to lower factory-to-warehouse distribution costs because shipments can be consolidated into full container loads. Where service windows to customers are very compressed there may not be sufficient time to ship products from a central warehouse and allow for the required transit time within the service window. 

Focus Decentralising finai manufacturing and inventory into market Centralising inventory and final manufacturing at continental level and globalising manufacturing and sourcing... 

Line Replaceable Unit A line replaceable unit (LRU), lower line replaceable unit (LLRU), line replaceable component (LRC) or line replaceable item (LRI) is a modular component that is designed to be replaced quickly at an operating location. An LRU is usually a sealed unit such as a radio or other auxiliary equipment. LRUs improve maintenance operations, because they can be stocked and replaced quickly from on-site inventory, restoring the system to service, while the failed (unserviceable) LRU is undergoing maintenance. Because they are modular, they also reduce system costs and increase quality, by centralising development across different platforms. 

A two-layered control strategy was described for supply chain management purposes. The strategy combines feedback controllers to account for the fast dynamics at the inventory nodes, while utilising the power of a fiilly-centralised optimisation-based model predictive controller to achieve an optimal operating policy for the supply chain network over a selected time horizon. 

The coordination strategies include buyer-vendor coordination, production-distribution coordination and inventory-distribution coordination (Thomas and Griffin, 1996). However, their implementation is complicated and depends on the characteristics of the SC. For example, coordination in a decentralised SC with stochastic demand and/or lead time should consider (1) an operational plan (2) a structure to share information among the members and (3) an incentive scheme to allocate the benefits of coordination (Li and Wang, 2007). In a centralised SC, the incentive scheme and the coordination strategy must be developed together as a single mechanism (De Treville et al, 2004). 

Because these products are highly profitable but only sell at a relatively slow rate they are candidates for centralised management. In other words, they should be kept in some central location, as far back up the supply chain as possible in order to reduce the total inventory investment, and then shipped by express transport direct to customers. 

Many organisations are now recognising the advantage of managing worldwide inventories on a centralised basis. To do so successfully, however, requires an information system that can provide complete visibility of demand from one end... 

Figure 4.5 Inventory centralisation against logistics costs and service dimensions...

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