Statistical Process Control-Based Inventory Policy

Abstract

Supply chain is a network of business entities like supplier, wholesaler, distributor, retailer etc. to perform various business functions to meet the needs of an end customer. An effective inventory policy maximizes the customer service level and keeps the total inventory at minimum. Improper inventory policy used generates the bullwhip effect which degrades the performance of a supply chain. In the present work, Statistical Process Control (SPC) based inventory policy is proposed. It’s performance is evaluated in terms of variance of orders, fill rate and total inventory at each stage of a serial supply chain and compared with the performance of order up-to level and moving average demand policies by simulation.  Three sets of inventory Decision Rules namely DR1, DR2 & DR3 were developed under SPC policy to optimize future orders and inventory levels. It is found that performance of DR3 is better than other inventory policies.