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Teaching Supply Chain Inventory Concepts through Simulation

Abstract

This paper describes how effective supply chain strategies using inventory control can help companies become more competitive in the global marketplace. It describes a manual simulation activity that is used in the author’s supply chain class to expose students to this concept. Instructional materials used for this simulation activity are shown.

Introduction

There are four major drivers that play a key role in the performance of any supply chain: facilities, inventory, transportation, and information1. Companies can improve their responsiveness and efficiency through these four drivers. The approach a company takes with these four drivers can determine whether or not a strategic fit is achieved across the supply chain. In other words it means that the company’s competitive strategy and supply chain strategy match. The focus of this paper will be on inventory, which is one of the four drivers, and how it can have a major impact on the profitability of a company.

The accepted practice of accumulating extensive inventories can be traced back to the industrial revolution. Even as recently as in the 1990s the timeframe to deliver merchandise to the customer from inventory in a warehouse could be as long as 15 to 30 days2. This timeframe and approach to delivering product to the customer drove the need to stockpile inventory. Today the rules of business have changed and that type of inventory strategy is no longer acceptable. Companies face intense global competition with new products being launched at a much faster pace. This has driven companies to outsource to places like China, India and countries in Eastern Europe. These changes have brought what some term a “new era” or “supply chain revolution” as companies try to reduce inventory and improve their quality. One only has to look at the fact that purchasing costs as a percent of sales for all industry in 2006 was 52% to understand that inventory is a huge expense to companies3. It stands to reason that supply chain management has become an area that companies are giving much more attention and are integrating into every facet of their business. As companies went global with their sourcing programs over the years, procurement became a strategic function within successful organizations4. It has become important for students in engineering and technology programs to become familiar with the concepts of supply chain management, forecasting, inventory control and continuous improvement.

This paper will describe how effective supply chain strategies using inventory control can help companies become more competitive in the global marketplace. The author will explain a manual simulation that is used in his supply chain class that provides an experiential learning activity to expose students to inventory control concepts. The simulation activity is woven in with the unit on inventory in a supply chain class.

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Stier, K. (2009, June), Teaching Supply Chain And Inventory Concepts Through Simulation Paper presented at 2009 Annual Conference & Exposition, Austin, Texas. 10.18260/1-2--5144