OPTIMIZING INVENTORY MANAGEMENT FOR PROFITABILITY FROM SUPPLIERS TO RETAILERS IN THE SUPPLY CHAIN

Abstract

Supply Chain Management (SCM) is a network of facilities and distribution options focused on cost, customer service, inventory cost, and the flow of activities within companies and organizations, with the main goal of maximizing profitability. Supply chain practices and inventory management ensure that products are delivered to customers with greater accuracy, safety, and promptness. However, the level of profitability in the supply chain when company management employs high service level drivers, conversant with road networks and quantity-based shipment consolidation for delivering finished products to retailers, needs to be explored. The objective of this study was to evaluate the optimum quantity and optimal cost required by customers for the supply chain to maximize profit. A quantitybased mathematical model with renewal theory was applied to obtain the optimal profit in the supply chain system. The results showed that with simultaneous variations in the costs of the supply chain and the retailer’s and supplier’s replenishment quantities, the total cost of the supply chain increased optimally with an increase in the optimal replenishment quantity of the retailer and a constant replenishment quantity of the supplier. Also, demand increases linearly as the value of the arrival rate and mean demand increase at the retailer point, resulting in increased profitability in the supply chain when the retailer orders more quantities from the supplier. A series of simulation tests showed that the model's functions are reasonably good. Therefore, enhancing levels of collaboration and communication on supply chain and inventory replenishment strategies between stakeholders in the supply chain who coordinate the flow of materials within a company and to consumers should be emphasized.