Market-Oriented Procurement Planning Leading to a Higher Service Level and Cost Optimization

Abstract

The current global market situation pursues high adaptability, but why? Complexity due to mass customization is greater than ever. Globalization is no longer a theory but a fact that makes disruptions in the globalized supply chain a major risk for operations. In this context, customers demand novelty and unique experiences. These are the main drivers for market success. Therefore, existing products are now in continuous states of change with shortened product lifecycles. The purpose of this article is to analyze the impact of new market entries and product changes along the lifecycle as well as supply chain disruptions in supplier inventory levels. The goal is to minimize costs by achieving a given service level with a market-oriented procurement planning model. The model pursues minimizing the time needed to align the system with the market and, therefore, the adaptability of the system. The research compares classical inventory management models with the new proposed approach by means of simulation with the system dynamics methodology. The results show how the proposed model increased the delivery service level, reduced inventory costs, and increased the utilization of resources due to lower demand uncertainty. Therefore, the developed model is able to plan the inventory supply with a low risk of stock outages. The conclusion proposes a differentiated forecasting and inventory strategy depending on the product lifecycle stage. The developed market-oriented procurement planning model provides guidance for inventory managers regarding how to optimize their operations as an opportunity within the fourth industrial revolution to develop information technology (IT) systems to gather and utilize demand and inventory data with real-time efficiency.

Keywords

• demand forecasting
• product lifecycle
• market changes
• inventory planning
• inventory cost
• service level