Report on Inventory Dynamics in Supply Chains: Business Perspective

This report delves into the intricacies of inventory dynamics within supply chains, emphasizing the crucial role of inventory management in aligning supply with demand. It defines supply chains, highlights the significance of inventory in managing fluctuations, and explores the Bullwhip effect. The report examines how market incentives influence inventory levels and introduces dynamic inventory models, such as Microsoft's Dynamics 365, and their applications. The importance of inventory dynamics is underscored by its ability to track goods, identify raw material shortages, and store extensive product information for future reference. The report discusses the applications of dynamic inventory models, the effects of delays, and the importance of information sharing between retailers and producers to minimize waste and reduce production costs. It also examines how companies like Toyota and Winner Imports Ukraine are embracing inventory dynamics to optimize their supply chains. The report concludes by highlighting the increasing adoption of inventory dynamics tools, emphasizing the importance of adapting to market changes for customer satisfaction and profit maximization.

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INVENTORY DYNAMICS IN SUPPLY CHAINS
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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.

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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

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the producers. Inventory dynamics minimize the element of surprise in terms of market incentive
distortions and therefore inclines inventories towards accommodating them.
How supply chains are dealing with the topic
The main aim of profit-making organizations is to make profits through customer
satisfaction while reducing the costs of production. Inventory dynamics, as it contributes to
profit-making, is being embraced by many companies. An example is Toyota that encompasses
Microsoft Dynamics 365 in its strategy to increase forklift orders by improving its customers'
after-sale services (Microsoft, 2018). Another company is Winner Imports Ukraine; they built a
system to connect their production system to the finance departments and their customers in an
attempt to optimize their supply chain using Dynamics 365 (Microsoft, 2018). This has
immensely contributed to their business success in their nation.
Adoption of Inventory dynamics tools is a great deal for companies now as the world
embraces technology. Procter and Gamble's company has been thriving for ten years now since
they adopted inventory tools for inventory optimization (Ingrid Farasyn, et al., 2011). From these
three companies, there is a clear indication that companies are embracing inventory dynamics in
their supply chains. The world is changing; with a lot of competition and market disruption,
suppliers are finding ways in which they can remain relevant in the market and still satisfy their
customer needs. With developing trends in market incentives, inventory dynamics is a good idea
for supply chain coordination.

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References
Boylan, M. A. a. J., 2011. The Journal of the Operational Research Society, 62(3), pp. 474-482.
Ingrid Farasyn, S. H. J. I. K. J. J. N. O. R. J. et al., 2011. Inventory Optimization at Procter &
Gamble: Achieving Real Benefits Through User Adoption Inventory Tools. Interfaces, 41(1), pp.
66-78.
Microsoft, 2018. Toyota Industries Corporation improves service operations to maximize uptime
for their customers. [Online]
Available at: https://customers.microsoft.com/en-gb/story/toyota-industries-
corporation[Accessed 26 February, 2020].
Microsoft, 2018. Ukrainian car and automotive companies secure the next era of growth.
[Online]
Available at: https://customers.microsoft.com/en-US/story/winner-imports-dynamics365-
operations-office365-azure-ontargit-retailers-ukraine-en[Accessed 26 February, 2020].
Rodríguez-Angeles, A. & Sánchez, A. M. D. a. A., 2009. Control of Supply Chain Systems,
Supply Chain the Way to Flat Organisation, Julio Ponce, and Adem Karahoca. [Online]
Available at: http://www.intechopen.com/books/supply_chain_the_way_to_flat_organisation/
dynamic_analysis_and_control[Accessed 26 February, 2020].
Sipahi, I. I. D. a. R., 2009. Inventory Dynamics Models of Supply Chains with Delays; System-
Level Connection & Stability. Topics in Time-Delay Systems, Issue 388, p. 349–358.
Swanson, D., Williams, B. D. & Waller, J. G. a. M. A., 2016. Full Steam Ahead: Firms in the US
Economy Adjust Inventory for Changes in Transportation Costs. Transportation Journal, 55(3),
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Winter, H. K. a. R. A., 2010. Inventory Dynamics and Supply Chain Coordination. Management
Science, 56(1), pp. 141-147.