Inventory Dynamics in Supply Chain

INVENTORY DYNAMICS IN SUPPLY CHAINS 1
INVENTORY DYNAMICS IN SUPPLY CHAINS
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INVENTORY DYNAMICS IN SUPPLY CHAINS 2
Inventory dynamics in supply chains
A supply chain refers to the set- up that connects the supplier to the consumer. It
comprises the supplier’s inventory and the infrastructure, activities, and personnel involved in
ensuring a product reaches the intended customer (Rodríguez-Angeles & Sánchez, 2009).
A supply chain starts with the supplier and flows towards the consumer. It is governed
by the law of supply and demand, with supply pointing toward the customer and demand leading
back towards the supplier. To manage supply and demand, inventory is an essential requirement
as it controls what the supplier offers. Inventory dynamics mean that inventory levels will
change with demand. First, at the retailer level as a response to an increase or decrease in
demand. This change escalates as it proceeds towards the producer, according to the Bullwhip
effect (Boylan, 2011). There is a need for supply chains to consider how market incentives
relate to inventory dynamics.
Inventory dynamics is a system of inventory management that incorporates all factors
that define the market and production, like price, demand, and supply and inventory present to
enable the supplier to evaluate the best they can do for the success of their business. It is based
on mathematical models of supply chains with different incentive distortions like market delays,
communication breakdown, and variation in supply and demand (Swanson, et al., 2016). An
example of these dynamic models in the market is Microsoft's dynamic 365, which is a product
line of enterprise resource planning (ERP) and customer relationship management (CRM)
applications that aid in the optimization of inventory in the supply chain.

INVENTORY DYNAMICS IN SUPPLY CHAINS 3
Importance of inventory dynamics in supply chains.
The main reason for keeping inventory is to keep track of goods supplied, in storage, and
work-in-process. The dynamic inventory models enable users to keep track of these by use of
computerized applications, determine where there is a shortage of raw materials so that the gap is
quickly filled. The inventory dynamics also offer the ability to store large information sizes
regarding products, which can be stored for quite a long time for future reference.
Inventory dynamic models like the Helbing’s model is used to relate inventory to demand
in the market (Sipahi, 2009). Demand is a huge aspect of the supply chain as it governs the
market. A supplier should always ensure that demand is met by supply to ensure that he remains
relevant to its customer. The inventory dynamic is vital to the supply chain in the sense that
inventory can be made to accommodate demand.
Delays like decision-making delays, transportation, and manufacturing lead times can
cause vast amounts of losses for companies as it results in oscillations, limit cycles, and
overshoot. Inventory dynamic models can be used to forecast the effects of these delays on
inventory behavior. Once this is established, the production line can always work concerning the
expected supply chain dynamics. In this event, the company is saved from losses that could be
incurred.
Applications built from dynamic inventory models give a platform for information
sharing between retailers and producers. This enables the producers to know the demand in the
market, therefore limiting the inventory to the size of demand to eliminate wastage, especially
for perishable goods such as food (Winter, 2010). This reduces production costs as well as
reduces losses. Out of constant communication and sharing, trust is earned between the retailers
and the producer, therefore, expanding the market. Expansion in the market means more profit to