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CHAPTER 2
REVIEW OF LITERATURE
The present chapter deals with the review of the literature pertaining to
the current research and its dimensions. The review of literature covers the inventory
optimization, factors influencing optimization decisions, inventory models adopted
in the industry and the scientific tools and techniques used to identify the critical
variables influencing inventory optimization decisions etc., for the broad
understanding of the concept and to initiate the research gap, to device the
appropriate methodology and to draw effective suggestions to resolve the issues in
inventory optimization decisions among the SMEs in the Auto sector.
Liang-Tu Chen and Chun-Chin Wei (2009) [18] The objective of the
model is to jointly determine the optimal selling price, base-stock level, and
inventory cycle over an infinite planning horizon so that the net profit per time unit
in the channel is maximized. The profit-maximizing problem is formulated as a
multivariate optimization model, solved by an iterative search process combined
with an enumeration scheme. In addition, the saving-sharing mechanisms, through
return, target sales rebate, and feature price discount, will also be developed so that
win-win can be achieved between vendor and buyer. Special emphasis is placed on
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the comparative study between the proposed optimization models that are based on
the coordinated and decentralized policies between vendor and buyer in the channel.
Juite Wang, Yun-Feng Shu (2004) [19] Managing Supply Chain (SC)
is very difficult, since various sources of uncertainty and complex interrelationships
between various entities exist in the Supply Chain. Moreover, the reducing product
life cycle and the heightened expectations of customers -have also made the Supply
Chain even harder to manage especially for innovative products. Although
innovative products can enable company to achieve higher profit margins, they
make demands for them unpredictable, because no historical data is available. This
paper develops a fuzzy decision methodology that provides and alternative
framework to handle SC uncertainties and to determine SC inventory strategies,
while there is lack of certainty in date or even lack of available historical data.
Fuzzy set theory is used to model SC uncertainty. A fuzzy supply chain model,
based on possibility approach is developed to determine te order-up-to levels of
stock-keeping units in the SC to minimize the SC inventory cost subject to the
restriction of fulfilling the target full rate of the finished product. The proposed
model allows decision makers to express their risk attitudes and to analyze the trade-
off between customer service level and inventory investment in the SC and better SC
inventory strategies can be made. A simulation approach is used to validate the
concept developed.
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Chih-Hsun Hsieh (2004) [20] Inventory model under risk that demand
is uncertain is recognized. In this paper, the fuzzy demand per day and fuzzy lead
time on a cycle in fuzzy inventory control system are assumed to trapezoidal
distribution, trapezoidal fuzzy number by decision maker. A fuzzy inventory model
under manager’s preference for order quantity is presented first. This model is given
by fuzzy total annual inventory cost summating of total annual holding cost and
fuzzy total annual setup cost. We obtain the optimal order quantity by using both
Function Principle and Graded Mean Integration Representation method for both
computing and representing fuzzy total annual inventory cost. The number of orders
in a year, then, is getting by the above optimal order quantity. In addition, we get the
reorder point and safety stock under a unit service level by manager. Furthermore,
we also introduce a fuzzy inventory model under safety stock based on fuzzy total
annual safety stock cost combined by total annual holding cost of safety stock and
fuzzy total annual stock out cost. Fuzzy average demand in lead time, mean, thus is
calculated by using Graded Mean Integration Representation method. Moreover, we
find the optimal reorder point and the optimal safety stock of our second proposed
model.
Keah Choon Tan (2004) [23] Over the past decade, the traditional
purchasing and logistics functions have evolved into a broader strategic approach to
materials and distribution management known as supply chain management. This
research reviews the literature base and development of supply chain management
from two separate paths that eventually merged into the modern era of a holistic and
strategic approach to operations, materials and logistics management. In addition,
this article attempts to clearly
system with fixed lifetime. The necessary condition for a minimum was derived.
Decisions regarding when to order or not is investigated under some conditions.
Guidelines for managing a real fixed lifetime perishable inventory system are given.
Felix T. S. Chan and Hing Kai Chan (2010) [28] In the fast-changing
fashion market, being flexible and adaptive is a key to survival. Therefore, supply
chain strategy like quick response is important in the fashion or textile industry.
Selection of suppliers to support such strategies is thus one of the most critical
activities, but is not well studied. Traditionally, suppliers are selected usually based
on quantity requirement and cost, which are not the only important issues in the
operation of a textile supply chain nowadays. This study presents an example on
solving the supplier selection problem in the apparel industry by using the
Analytical Hierarchy Process (AHP), which takes the operational performance (for
example, flexibility, cost, and delivery) into account for supporting supply chain
strategies. The system was implemented with the aid of the commercial software
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package Expert Choice. Based on the results from the AHP model, benefits of
implementing quick response in apparel supply chains can also be verified
Kee-hung Lai et al. (2002) [29] This study aims to investigate the
construct of, and develop a measurement instrument for, supply chain performance
(SCP) in transport logistics. Based on the supply chain operations reference model
and various established measures, a measurement mode and a measurement
instrument for SCP in transport logistics are developed. A 26- item SCP
measurement instrument was constructed, reflecting service effectiveness fro
shippers, operations efficiency for transport logistics serve providers, and service
effectiveness for consignees. The empirical findings suggest that the measurement
instrument is reliable and valid for evaluation SCP in transport logistics
These anomalies suggest that to explain success in the auto parts industry
we need to move beyond liberalization to look at policies and institutions promoting
economics of scale, skill Formation , quality upgrading, supplier-linkage
cooperation, and innovation. In Japan, the regional and global leader, innovative
assemblers led industrial development and supported key suppliers, but the
government also supported diffusion of quality control technique and new
technology to small and medium enterprises, and encouraged stable employment
among core employees. Korea remains weaker on both SME and employment
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Tobias Schoenherr (2009) [31] this paper provides a large scale and
structured review of published Logistics and Supply Chain Management (L&SCM)
work within a global context. Given the large number of articles in this area, such a
review is overdue. Many papers in the past only provided a brief overview or
snapshot of SCM in a specific country, region, continent, or the world overall
(Gammelgaard 2006). In contrast, the present study integrates prior research into an
overriding framework, providing structure and orientation. Similar country specific
efforts have recently been made by Zhao, Flynn, and Roth (2006, 2007), who
synthesized research studies addressing operations management related issues in
China. Gubi et al. (2003), who reviewed doctoral dissertations in logistics and
supply chain management in Scandinavia. Also noteworthy is the international
logistics section of the annotated bibliography covering Logistics and Supply chain
Management (L&SCM)-related dissertations (Stock and Broadus 2006). The
sample was drawn from ABI/INFORM’s Global database, which includes almost
1,800 journal titles. While we restricted ourselves to peer reviewed publications, we
did not limit our search to purely academic or mainstream L&SCM journals. The
inclusion of non-disciplinary or practitioner journals enabled us to provide a holistic
overview of the field and identify valuable studies that might have otherwise been
overlooked.
Hafiz Ullah and Sultana Parveen (2010) [33], The present paper,
discuss one of the most challenging subjects for the management namely production
planning. It appears to be a hierarchical process ranging from long to medium to
short term decisions. Production planning models are divided into two categories
which are capacitated and uncapacitated. This paper reviews the literature on single
level single-resource lot sizing models and provides a survey of the literature dealing
with inventory lot sizing problems and other concepts considered in this area. The
purpose of this dissertation is to review the developments and to identify the status
of existing literature in this area.
Careful examination of aggregate data from the U.S. and other OECD
countries reveals that production and inventory behavior exhibit paradoxical
features. (1) Inventory investment is strongly countercyclical at very high
frequencies ; it is procyclical only at relatively low-cyclical frequencies such as the
business-cycle frequencies. (2) production is less volatile than scales around the high
frequencies. (2) Production is less volatile than sales only around business-cycle
frequencies. These features of production and inventory behavior at the low and high
frequencies provide a litmus test for inventory theories. This paper shows that the
stock out avoidance theory Kahn, J.1987. Inventories and the volatility of production
American Economic Review 77 has much better potential than other competing
theories for explaining the seemingly paradoxical features of inventory fluctuations
observed at different cyclical frequencies. My analysis suggests that demand shocks
are main source of the business cycle.
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Harris F. (1913) [37] explains in his paper titled “How many parts to
make at once “that the EOQ model lays the foundation for all inventory models. It is
the most important analysis of inventory control and describes the important trade-
off between fixed order cost and holding cost. The first reference to the EOQ model
is by Harris (1913) but this model was popularized by Wilson (1934).
Mark Barratt and Adegoke Oke (2007) [40], Although visibility has
become a popular buzzword in the supply chain literature it remains an ill-defined
and poorly understood concept. It is assumed that if companies across supply chains
have visibility of demand, inventory levels, processes, etc., that organizational
performance improves. This research explores the antecedents of high levels of
supply chain visibility from a resource-based theory perspective across five different
external supply chain linkages. We find that the level of visibility across these
linkages differs considerably based on various contributing factors which are both
technology and non-technology based. Using resource-based theory, we identify
those factors that can give a sustainable competitive advantage to a supply chain
linkage through a ‘‘distinctive’’ or high level of visibility.
of developing logistics and supply chain system strived for cost and time reduction
in supply chain and has the important guideline as 1) increasing the performance
efficiency by reducing the non-value added activities, 2) planning effective
transportation, 3) increasing the effectiveness of predicting the demand in relevant to
the need of customer and transportation plan, and 4) developing the information
technology system to link and exchange information within organization, between
organization, and between government sector and entrepreneur.
for other industries. The survey and the subsequent analysis of these industries have
confirmed the strategic importance of supplies and the need for a n integrated
approach of supply management, both in terms of internal processes and external
suppliers. Additionally, the study has proved that there is not a unique mode for
supply management, valid for all industries.
Eunjin Lee (2008) [46] , The purpose of this paper is to advocate the
managerial practice of making decisions based not only on intuition, but intuition
coupled with quantitative analysis. Operations Research (OR) or Optimization is one
of the leading managerial decision science tools used by profit and nonprofit
organizations such as Ford Motors, AT&T, Merrill Lynch, Samsung, US Army
Recruitment and Olympic games organizing committees. Such technique is utilized
by functional groups such as Industrial Engineering in effort to support Operations
Managers to make economically feasible decisions on a range of systematic
challenges. In order to make the effective yet efficient decisions, managers must
have fundamental understanding of the decision science tools utilized in developing
set of recommendations to choose from. With this motivation, this paper includes
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supply chain. In India is integrating the entire supply chain‘ and managing it as a
single integrated entity. Managing inbound logistics remains another key concern for
OEMs as well as auto component players, driven more by challenges related to
reliability of data, lead time and absence of quality logistics players on the upstream
side. The study attempts to capture the innovative supply chain practices in Indian
Automobile Industry, identify key challenges involved in integration and
implementation of supply chain .
Steven N. Durlaf and Louis J. Mccini (1995) [50], this paper has two
purposes. One is to assess different models of inventory behavior in terms of their
ability to approximate the realized data. performs specification tests as well as
measures the deviations of the data from each null model through use of noise
ration statistic smoothing model and then for a sequence of generalizations. A
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Chih-Yao Lo(2008) [52], This study is mainly to cope with the problems
when a frim faces tim-varying demand and receives product from a single supplier
who faces time-varying demand and receives product from a single supplier who
faces random supply. The supplier`s availability may be affected by events such as
natural disasters, labor strikes, manufacturing defects, machine breakdowns, or other
events. A model is proposed in this research that considers a dynamic production-
inventory environment. The exponential distribution of disruption, as well as the
demand can be time dependent. The model explains production inventory as a NP-
hard problem, which using genetic algorithms is developed to minimize the average
total cost to determinate the production cycles under various demands in an
extensive order. Based on the computational result, it can be seen that the optimal
ordering policy not only should strike a balance between protecting against stock
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outs during disruption but also maintaining low inventory levels of finished products
and raw materials.
prove that the optimal replenishment schedule exists and unique. A simple algorithm
is provided to find the optimal solutions models can be found
Shah and Shukla (2009) [58] study a deteriorating inventory model with
constant demand rate, constant deterioration rate and waiting-time-dependent partial
backlogging. The convexity of the total cost function is shown numerically and the
optimal order quantity is obtained through minimizing the total cost
Geetha and Uthayakumar (2010) [59] studied an EOQ based model for
deteriorating products with permissible delay in payments. They considered constant
demand rate, non-instantaneous deterioration, and waiting-time dependent partial
backlogging. The necessary and sufficient conditions of the existence and
uniqueness of the optimal solutions are provided. An up-to-date review paper is
published recently by Li et al. (2010).
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Md. Azizul Baten and Anton Abdulbasah Kamil (2010) [61] The
production inventory problem in a manufacturing system with degenerate Stochastic
demand. We derived the dynamics of inventory-demand ratio that evolves according
to Stochastic neoclassical differential equation through Ito’s Lemma. We established
the Riccati based solution of the Hamilton-Jacobi-Bellman (HJB) equation
associated with this problem
presents how the manufacturer can take advantage of the retailer`s market
information and improve the efficiencies in the supply chain channel.
Kevin Goh & Mark Uncles (2002) [68] Many claims have been made
concerning the benefits of airline global alliances, often from the viewpoint of
airline operators. By contras, the focus of this is an empirical study of the
perceptions of consumes. Studied first are the perceptions that business travelers
have of the benefits of global alliances. Results show that a sizeable minority ar
unsure of the benefits or hold at least some misconceptions. This varies depending
on the nature of the benefit and type of respondent. Results also suggest that no
major differences are perceived in the benefits offered by competing global
alliances, second, the importance of global alliance benefits in determining airline
choice by business travelers is considered. Relative to other benefits, alliance
benefits are not seen as particularly important.
John Michael Woosley (1997) [69] The rising cost of quality healthcare
is becoming an increasing concern. A significant part of healthcare cost is the
pharmaceutical supply component. Improving healthcare supply chains is critical
not only because of the financial magnitude but also because of the fact that it
impacts so many people. Efforts such a as project are essential in understanding the
current operations of healthcare pharmacy systems and in offering decision support
tools to managers struggling to make the best use of organization resources. The
objectives of local case hospital that are typical general problems in pharmacy
supply chain management. We analyze the pharmacy supply network structure and
different, often conflicting goals in the decision of the various stakeholders. To
provide decision support tools that improve operational, tactical, and strategic
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Inventory costs have lot of impact on the profitability of the firm and its
success. Inventory management and its optimized decisions are depending on the
identification of key success factors and right decisions at right moment. In a
dynamic market environment, it is necessary to focus on the decision making and
the factors influencing decision making in order to optimize the results of inventory
function. The survey approach can bring a light on the variables and these have lot
of biased information. Testing of the factors influence on inventory decisions by
using scientific methods can help to improve the reliability of the factors taken as
key variables in decision making. Hence, the present research is focused on two
dimensions namely identification of Factors influencing inventory optimization
among SMEs in auto sector through a structured questionnaire and grouping them
into two sets as internal variables and external variables. Identifying the relevant
factors affecting the Inventory Optimization and there by inventory cost is pre
requisite to improve the performance of Inventory function. It is also important to
establish the relationship between inventory internal and external factors and its
influence on the inventory optimization. Hence the Hybrid approach of surveying
the Industry experts and consolidating the items into factors, testing those factors
using scientific methods can help in identifying the relevant and key variables
affecting Inventory Optimization among the SME`s. Establishing the relationship
between grouped factors and the type of organization structure followed and their
influence on inventory optimization decisions, Grouped external factor’s sensitivity
on the inventory optimization decision. Based on this the study is titled as
“Application of inventory optimization decisions among SMEs in auto sector using
FCM and AHP techniques”.