Academic level – Graduate
Type of paper – Critical thinking
Topic Title – Inventory management and tradeoffs
What are the tradeoffs associated with inventory management?
Identify challenges companies faced with their levels of inventory during and after the pandemic. Specify your answer by discussing how the challenges affect the tradeoffs associated with inventory management.
Effective supply chain operations are only achievable with effective inventory management. This aspect can reduce the risks of stockouts, overstocking, obsolescence, and shrinkage, improving various company dimensions. Nevertheless, it is paramount to maintain a perfect balance between meeting customer demand and minimizing operation costs. This harmony is associated with complex tradeoffs that impact a company’s profit and customer satisfaction.
Inventory management involves finding the optimal balance between costs and stockout costs. Jauhar et al. (2023) state that having too much inventory increases storage costs, while having too little inventory causes revenue loss and customer dissatisfaction. Another crucial tradeoff in inventory management is between lead times and inventory levels. Longer lead times usually require higher inventory levels to ensure timely deliveries, which raises costs. Other than that, lowering inventory levels can harm a company’s supply chain. The COVID-19 pandemic made these tradeoffs even more challenging to manage, as it disrupted global supply chains (Jauhar et al., 2023). The pandemic also caused unpredictable changes in customer demand due to lockdowns, changes in consumer behavior, and supply chain disruptions. These changes created market fluctuations that were hard to predict. Therefore, inventory management tradeoffs require constant attention to avoid significant company losses.
The pandemic created a lot of uncertainty in customer demand, which affected the tradeoff between holding and stockout costs. Some companies faced stockouts, which led to lost revenue and unhappy customers (MacDonald & Kantchev, 2021). Others had too much inventory, which increased their holding costs. The pandemic also disrupted supply chains, which affected the tradeoff between lead time and inventory level. Companies that relied on single-source suppliers or offshore production had longer lead times, which forced them to keep higher inventory levels with higher holding costs (MacDonald & Kantchev, 2021). What is more, the pandemic accelerated the shift to e-commerce, which affected the tradeoff between transportation costs and inventory placement. Storing inventory closer to customers reduced transportation costs but increased holding costs, while having centralized distribution centers reduced holding costs but increased transportation costs and delivery times.
Inventory management tradeoffs are indispensable components for supply chain success. The challenges faced during and after the pandemic emphasized the delicate nature of these tradeoffs. With further business development, adaptable inventory strategies will be essential to navigating uncertain demand patterns, supply chain disruptions, and the evolving landscape of customer expectations.
Jauhar, S. K., Jani, S. M., Kamble, S. S., Pratap, S., Belhadi, A., & Gupta, S. (2023). How to use no-code artificial intelligence to predict and minimize the inventory distortions for resilient supply chains. International Journal of Production Research, 1–25. https://doi.org/10.1080/00207543.2023.2166139
MacDonald, A., & Kantchev, G. (2021, November 7). Companies grapple with Post-Pandemic inventories dilemma. WSJ. https://www.wsj.com/articles/companies-grapple-with-post-pandemic-inventories-dilemma-11636290000