Inventory management in a lateral collaborative manufacturing supply chain: a simulation study

Abstract

Due to global competition, firms are seeking more effective supply chain (SC) collaboration in order to provide quality products with less cost, at the right time and in the right quantity. The present study examines manufacturing SC collaboration on the basis of holding cost, backorder cost and ordering cost. The types of collaboration examined are vertical, horizontal and lateral collaboration. This research emphasises lateral collaboration by determining the impact of inventory policies ((s, S) and (s, Q) inventory policies) on SC performance. For better understanding, a conceptual model is provided that is supported by a numerical example. As the study of SCs is complex in nature, a simulation approach has been employed to show the impact of lateral collaboration on performance measures such as the total cost, which is the sum of several cost components: inventory holding cost, backorder cost and ordering cost. The research is based on two manufacturing SCs where the manufacturer is taken as the collaborative node. To allow more clarity, a separate study on each cost component has been conducted. The laterally collaborative SC was simulated on ARENA 9.0, a simulation package. The results show that the efficacy of lateral collaboration outperforms horizontal collaboration due to having the individual SC members at more liberty to make decisions.

Keywords:

• inventory management
• supply chain management
• simulation
• collaborative manufacturing

Acknowledgements

The work described in this paper received substantial support by way of a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (project No. PolyU 510410). The authors would also like to thank Hong Kong Polytechnic University Research Committee for financial support.