58

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.

2.1 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

DECISIONS

Dave and Patel (1981)[17] studied an inventory system with finite

planning horizon, multiple replenishments but equal order cycles, constant
deterioration rate, no shortages and linearly changing demand rate. The objective is
to find the optimal number of replenishments.

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
 59

the comparative study between the proposed optimization models that are based on
the coordinated and decentralized policies between vendor and buyer in the channel.

2.2 REVIEW OF LITERATURE ON FUZZY APPROACH

APPLICATIONS IN INVENTORY MANAGEMENT

The primary goal of fuzzy systems is to formulate a theoretical

foundation for reasoning about imprecise propositions. Based on fuzzy set theory
introduced by Zadeh (1965), it is an inference procedure that derives conclusions
from a set of fuzzy if–then rules, and an effective approach to modeling human
thinking. In this work, a fuzzy approach is used to reason from fuzzy numbers,
considering decision makers’ subjective assessments, to obtain aij’s in the pair wise
matrix of the AHP.

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.
 60

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.

R.A.Aliev et al. (2007)[21] Aggregate production-distribution planning

(APDP) is one of the most important activates in supply chain management (SCM).
When solving the problem of APDP, we are usually faced with uncertain market
demands and capacities in production environment, imprecise process times, and
other factors introducing inhere cent uncertainty to the solution. Using deterministic
and stochastic models in such conditions may not lead to fully satisfactory results.
Using fuzzy models allows us to remove this drawback. It also facilitates the
inclusion of expert knowledge. However, the majority of existing fuzzy models deal
only with separate aggregate production planning without taking into account the
interrelated nature of production and distribution systems. This limited approach
often leads to inadequate results. An integration of the two interconnected processes
within a single production- distribution model would allow better planning and
management. Due to the need for a joint general strategic plan for production and
distribution and argue planning data, in this paper we develop a fuzzy integrated
 61

multi-period and multi-product production and distribution a model in supply chain.

The model is formulated in terms of fuzzy programming and the solution is provided
by genetic optimization. The use of the interactive aggregate production-distribution
planning procedure developed on the basis of the proposed fuzzy integrated model
with fuzzy objective function and soft constraints allows sound trade-off between
the maximization of profit and fill rate. The experimental results demonstrate high
efficiency of the proposed method.

2.3 SUPPLYCHAIN OPERATIONS AND APPLICATIONS

Bhutta et al. (2003) [22] presents a mixed integer linear programming

model for international facility location decisions considering exchange and tariff
rates. Along with location, production and distribution functions, investment level
was also considered as one of the decision variables. This profit maximization model
represents the integration of all of the above mentioned factors thus providing an
insight into how they are affected due to global factors such as exchange and tariff
rates. Determination of international facility location decisions in this model is thus
based on a collective analysis of the various supply chain factors such as
production capacity, distribution patterns and also investment levels.
Encouraging results have been obtained in terms of the model performance and
results thus emphasizing the need for integrated supply chain analysis

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

Enagbonma O. and Eraikhuemen I.B(2011) [24] This paper deals with

the problem of computing optimal ordering policies for a single product with fixed
lifetime of exactly m periods. We presents a proposed cost function for the inventory
 62

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.

2.4 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

IN SUPPLY CHAINS

Lee H. L.(2003) [25] said excellent supply chain possesses three

attributes: agility, adaptability, and alignment. Firms need to build deep partnerships
with each other, so they can share profit, cost, information, and risk in the supply
chain. The best coordination situation for the supply chain is win-win, i.e., the total
channel profit and each member’s profit in the supply chain can be improved. The
buyer-vendor problem focuses on channel coordination issues for pricing and
inventory decisions between the upstream and downstream entities in the supply
chain, with the objective of maximizing the total channel profit.

Perter Fredriksson (2005) [26], To identify operations and logistics

insures which are critical for the operational performance in modular assembly
processes. Based on case studies of Volvo Cars, Toyota, and Saab, the paper
identifies operations and logistics issues that are critical for the operational
performance of modular assembly processes. The issues are used for extending our
understanding of the design operation of modular assembly processes. The issues
identified concern production planning, deviation handling, assembly flow balance,
small unit disadvantages and module flow control.

They reveal that a modular assembly process design brings structural

disadvantages related to the dispersion of actives and resource needs. The issues
also demonstrate the need for extensive coordination across the interfaces of the
decoupled parts of the process. The findings will mainly be relevant for firms that
design and produce complex products involving several technologies and that ue
company-specific modules as is the case in the automotive industry, for instance.
 63

2.5 REVIEW OF LITERATURE ON AHP MODEL APPLICATIONS

IN INVENTORY DECISION

V. Paramasivam et al. (2010) [27] Decision making in equipment

selection: an integrated approach with digraph and matrix The equipment selection
process is considered in the early stage of the design process since the equipment
selection process decides the quality, cost, and reliability, which are important for
customer satisfaction. Due to the availability of large numbers of equipment, the
selection of suitable equipment for certain operation/product becomes much
difficult. The selection process is not so easy a task because the equipment features
are many and vary from one manufacturer to another, and the features are also being
increased constantly. Since the quality, cost, and reliability of a product are decided
by proper equipment selection, the equipment selection process becomes more and
more important. This paper describes three multi-attributes decision-making
methods, namely, digraph and matrix approach, analytical hierarchical process
(AHP), and analytical network process (ANP). These methods provide selection
indices for different alternatives considered. In this paper, the selection of milling
machine is considered. The problem is solved by digraph and matrix approach,
AHP, and ANP methods. The results obtained by the three methods are compared
and analyzed. Finally, a milling machine is selected as the best one concerning
manufacturing environment

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
 64

package Expert Choice. Based on the results from the AHP model, benefits of
implementing quick response in apparel supply chains can also be verified

2.6 INVENTORY MANAGEMENT-MANAGERIAL IMPLICATIONS

IN GLOBAL SCENARIO

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

Richard F.Doner et al. (2003)[30], Rationalization and stabilization

following the Asian financial crisis of the late 1990s combined with the expansion
and liberalization of regional and global trade to create significant parts industries in
the republic of Korea, China and Indonesia. Conventional policies of stabilization
and liberalization, however cannot fully explain growth patterns. Japan and Korea
grew into major players before liberalizing trade and investment, while even after
extensive liberalization Indonesia has yet to move from extensive to intensive
growth.

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
 65

fronts, but government-encouraged consolidation around a small number of business

groups, an extended period of protection, and support for export promotion led to
economies of scale .Liberalization of foreign investment after the financial crisis
helped ameliorate the excessive statism of earlier policies and strengthened the parts
industry. In China, liberalisation for World Trade Organization (WTO) entry, rapid
expansion in demand, and strong support by local governments encouraged a wave
of foreign investment in both assembly and parts. In contrast, institutional
weaknesses continue to constrain development opportunities in Indonesia.

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.

P.Radhakrishnan et al. (2009) [32] Inventory management plays a vital

role in supply chain management. The service provided to the customer eventually
gets enhanced once the efficient and effective management of inventory is carried
out all through the supply chain. Thus the determination of the inventory to be held
 66

at various levels in a supply chain becomes inevitable so as to ensure minimal cost

for the supply chain. Minimizing the total supply chain cost is meant for minimizing
holding and shortage cost in the entire supply chain. The minimization of the total
supply chain cost can only be achieved when optimization of the base stock level is
carried out at each member of the supply chain. A serious issue in the
implementation of the same is that the excess stock level and shortage level is not
static for every period. In this paper, we have developed a new and efficient
approach that works on Genetic Algorithms in order to distinctively determine the
most

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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2.7 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

IN AUTO SECTOR

Liang-chieh(victor) Cheng (2010) [34], Recently, the United States

(US) manufactures have been facing strong competition domestically and global for
cost reduction and product customization. A key response to these competitive
pressures is the outsourcing strategy. While sporadic case studies have investigated
outsourcing strategy. While sporadic case studies have investigated outsourcing`s
cost implication empirical analyses examining outsourcing`s financial and
operational performance are lacking. This paper investigates the impacts of
outsourcing in the US manufacturing sector and hypothesis that higher level of
outsourcing will lead to higher performance are lacking. This paper investigates the
impacts of outsourcing in the US manufacturing sector and hypothesis that higher
level of outsourcing will lead to higher performance. Using the US Economic
Census as the data sources, the paper finds that outsourcing is positively associated
with Return on Assets and Return on Investment but is negatively associated with
product specialization.

2.8 REVIEW OF LITERATURE ON AUTO COMPONENT

MANUFACTURING SECTOR

Dhaenens-Flipo and Finke (2001) [35] consider an integrated

production-distribution problem in multi-facility, multi-product and multi-period
environment. The problem is modeled as a network flow problem with an objective
to match products with production lines to minimize the related costs. The network
with three elements productions lines, warehouses, and customers - has been initially
modeled for a single period and then advanced to obtain a multi-period model. Due
to the large number of variables and constraints involved in the multi-period model,
it is significantly reduced in size by reducing the density of the network. In other
words, of all the possible warehouse links going to a customer, only the cheapest
20% links are considered thus reducing the number of variables significantly.
 68

Sabri and Beamon (2000) [36] present a multi-objective multi-product

multi-echelon stochastic model that simultaneously address strategic and operational
planning while taking into consideration the uncertainty in demand, and production
and supply lead-times. The authors point to some gaps in the SC literature - most
stochastic models presented so far consider only up to two echelons. Conversely,
other larger models are mostly deterministic in nature. Moreover, these deterministic
models consider only profitability and ignore other performance measures. Another
observation is that strategic and operational levels are not considered
simultaneously. The main model presented here consists of a mixed integer linear
programming (MILP) sub-model for the strategic level, to determine the optimal
number and location of manufacturing facilities and DCs, and assignment of service
regions to DCs.

2.9 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

MODELS

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).

Wu J.W. et al. (2000) [38] considered a deteriorating inventory model

with fixed cycle length, single replenishment per cycle, time-varying demand,
Weibull distribution deterioration, and complete backlogging. The objective is to
find the optimal time point at which inventory falls to zero, and hence identify the
optimal order quantity.

Teng J. and Chang C. (2005) [39] establish a deteriorating Economic

order quantity (EOQ) model in which the demand rate is a function of the on-hand
inventory and no shortages are allowed. There are three possible cases for this
inventory problem and they establish the necessary and sufficient conditions for
 69

each case. Moreover, an algorithm to determine the optimal replenishment cycle

time and ordering quantity is proposed to maximize the total profit.

2.10 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

IN COMPONENT MANUFACTURING INDUSTRY

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.

Nanthi Suthikarnnarunai (2009) [41] Steel Industry is the primary

industry which plays demanders important role on the country development and
economy sustainability. This industry’s supply chain and logistics system is
considered complex and appears to be part of other industries’ supply chain and
logistics systems, such as infrastructure, electronics, electrical, or automotive
industries, etc. Thai government has seen an opportunity for the importance of
logistics and supply chain systems development for Thai steel industry. In order to
support and develop logistics systems, we were coordinating by the Ministry of
Industry, to conduct research on how to develop logistics and supply chain system
for Thai steel industry. The logistics cost of this industry was also considered in this
research as it is one of the performance measurement of the entrepreneur. The result
of the study indicated that the logistics cost of the steel industry was according to the
principle of supply chain and logistics management theory and also relied on other
economics factors such as oil price, the number of labor, interest rate, and exchange
rate, etc. Additionally, the results indicated that Thai steel industry has potentiality
 70

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.

Baten and Kamil(2010) [42] presented a continuous review model

for the control of production-inventory system subject to generalised Pareto
distributed deterioration. They used the principle of control theory to determine what
should be the optimal level of inventory in the system. Benhadid et al. (2008) also
used control theory to show how to manage inventory in a production system with
deteriorating items and dynamic costs

2.11 REVIEW OF LITERATURE ON iNVENTORY MANAGEMENT

IN SME`S

Gabriel R. Bitran et al. (2007) [43] Motivated by the disintegration of

supply networks observed in the automotive, textile and electronics industry, we
discuss the impact of such phenomena on the network players. We hypothesize that
the state of disintegration is not sustainable and will be followed by an eventual
reintegration. We present evidence from a field study that was conducted to
understand the impact of disintegration on original equipment manufacturers and on
small and medium enterprises to support our hypothesis. We introduce the aggregate
player, whose role is to provide the required services, assume control and govern a
portion of the supply network. We explore the issues that an aggregate player will
face and contrast two different models of an aggregate player.

Eva Ponce-Cueto (2010) [44], In this paper a strategic supply

management reference model for supplier integration in the supplier integration in
the supply chain is presented. The model developed is based on the comparative
case study of two relevant industries – automotive and aircraft – and may be suitable
 71

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.

2.12 REVIEW OF LITERATURE ON INVENTORY DECISION

PARAMETERS IN AUTO SECTOR

Ambe.M and Badenhorst-Weiss.J.A (2007)[45] Companies facing

issues ranging from globalisation, economic uncertainty to new technologies and
increasing consumer demands. In the automobile industry, as manufacturers design
and build vehicles globally, their supply chains become increasingly complex with
challenges that often stand in the way of profitability and higher shareholder value
such as long order-to-delivery lead times, unreliable production schedules, excess
inventory across the supply chain, lengthy demand planning cycles and lack of
visibility of suppliers. The effect of the global economic meltdown increased the
pressure on automotive executives to make right decisions about their supply chain
for better performance. In a highly challenging and competitive environment such as
today. The paper explores the concept of lean and agility as generic supply chain
strategies and presents a strategic supply chain for Auto 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
 72

brief discussion on background of OR, its methodology and publicly reported

benefits of implementing OR and challenges in OR. Since the purpose of this
literature is to disseminate information to advocate the importance of scientific
approaches in the process of managerial decision-making, research and academic
disclosures are intentionally omitted.

Mohammad Anisseh and Rosnah bt Mohd Yusuff (2011) [47] Most

important decisions in organizations are made by groups of managers or experts.
Methods for aggregating preferences and reconciling differences are needed in case
decision makers have different viewpoints. Human judgments, including preferences
are often vague and cannot be estimated in exact numerical values. This paper
proposes a new method under the linguistic framework for heterogeneous group
decision making. To accomplish this, an integrated fuzzy group decision making
method based on Borda count is proposed, which allocates different weights for
decision maker group members to use linguistic terms in order to express their fuzzy
preferences for alternative solutions and for individual judgments. The proposed
method is then supplied with a numerical example to illustrate the procedure and
compare the results with other extant methods.

Jawahar Babu Kvsn (2012)[48] Automotive industry has hundreds of

suppliers and thousands of spare parts units. Due to globalization, the automotive
supply chain has been undergoing tremendous changes and the industry has been
exploring innovative methods to reduce operating cost, lead time and inventory to
sustain their growth in the market. With the expansion of sourcing partners,
streamlining customer requirements, inventory management, accurate forecasting,
better suppliers‘ relation, coordination and co-operation across supply chain, better
visibility and control over the process and reduction of lead time is being achieved
by the organizations. The Indian auto industry is small in size, compared to the
world markets ($ 6.73 billion compared to a world market of $737 billion) but has
experienced a growth rate of 20-25% in the past few years. Despite higher raw
material costs, higher energy costs and poorer infrastructure in India, multinational
OEMs that have entered the Indian market have managed to produce cars that have
high local content and are sold at competitive retail prices, largely owing to efficient
 73

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 .

2.13 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT

TOOLS FOR SMES

Cheng (2010) [49], Recently, the US manufactures have been facing

strong competition domestically and global for cost reduction and product
customization. A key response to these competitive pressures is the outsourcing
strategy. While sporadic case studies have investigated outsourcing strategy.
While sporadic case studies have investigated outsourcing`s cost implication
empirical analyses examining outsourcing`s financial and operational performance
are lacking. This paper investigates the impacts of outsourcing in the US
manufacturing sector and hypothesis that higher level of outsourcing will lead to
higher performance are lacking. This paper investigates the impacts of outsourcing
in the US manufacturing sector and hypothesis that higher level of outsourcing will
lead to higher performance. Using the US Economic Census as the data sources,
the paper finds that outsourcing is positively associated with reserve on assets and
ROI but is negatively associated with product specialization.

2.14 REVIEW OF LITERATURE ON INVENTORY MANAGEMENT:

ROLE IN MANAGERIAL LEVEL

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
 74

second purpose is to explore whether observed cost shocks, in particular raw

materials prices, help explain inventory movements. The production smoothing
model of inventories, augmented by buffer stock motives, stock out avoidance
motives and, observed cost shocks, well approximates monthly data.

Yung-yu Tseng and Wen Long Yue (2005)[51] The operation of

transportation determines the efficiency of moving products. The progress in
techniques and management principles improves the moving load, delivery speed,
service quality, operation costs, the usage of facilities and energy saving.
Transportation takes a crucial part in the manipulation of logistic. Reviewing the
current condition, a strong system needs a clear frame of logistics and a proper
transport implements and techniques to link the producing procedures. The objective
of the paper is to define the role of transportation in logistics for the reference of
further improvement. The research was undertaken to assist logistics managers,
researchers and transportation planners to define and comprehend the basic views of
logistics and its various applications and the relationships between logistics and
transportation.

2.15 REVIEW OF LITERATURE ON IT APPLICATIONS IN

INVENTORY OPTIMIZATION

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
 75

outs during disruption but also maintaining low inventory levels of finished products
and raw materials.

2.16 REVIEW OF LITERATURE ON BEHAVIOURAL ASPECTS OF

INVENTORY CONTROL

W. Elmaghraby and P. Keskinocak(2003) [53] The model we consider

is that of the new supplier’s determination of a pricing strategy to maximize their
revenue in the supply chain given perfect knowledge of the pricing strategies of their
competitors and the strategy of the procurement decision maker. This model is
fairly simplistic in its approach to pricing, but illustrates some important
optimization techniques that can be used by a supplier to handle a so-called “static”
pricing situation, where the demand is known and the prices and procurement
strategies of the other players in the supply chain are known and fixed for several
periods. Discussion of more complicated dynamic pricing

Ine´ S Herrero (2004) [54]: In determining the importance of criteria in

the management of fisheries, two key issues stand out—the definition of a succinct
set of criteria and the determination of which interest groups play a defining role in
the management development process. This is indeed the case for all natural
resource management problems, and many other environmental problems as well.
The analytic hierarchy process (AHP) provides an effective framework for such an
analysis. The AHP is generally used to evaluate importance amongst criteria based
on the concept of paired comparison. This paper considers the development of a
representative criteria hierarchy, and uses data obtained from a pair wise comparison
survey based on the UK fisheries of the English Channel to investigate priorities that
exist among different interest groups in the fisheries. The implementation of the
AHP in this application provides a useful tool for analysis of criteria amongst groups
involved in the management process with diverse interests

Chang H. Teng J. et al. (2006) [55] establish a finite horizon Economic

Order Quantity (EOQ) model with deterioration for a retailer to determine its
optimal selling price, replenishment number and replenishment schedule. They
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prove that the optimal replenishment schedule exists and unique. A simple algorithm
is provided to find the optimal solutions models can be found

Jung-Fa Tsai (2006) [56] Owing to the difficulty of treating nonlinear

functions, many Supply Chain Management (SCM) models assume that the average
prices of materials, production, transportation, and inventory are constant. This
assumption, however, is not practical. Vendors usually offer quantity discounts to
encourage the buyers to order more, and the producer intends to discount the unit
production cost if the amount of production is large. This study solves a nonlinear
SCM model capable of treating various quantity discount functions simultaneously,
including linear, single breakpoint, step, and multiple breakpoint functions. By
utilizing the presented linearization techniques, such a nonlinear model is
approximated to a linear mixed 0–1 program solvable to obtain a global optimum.

Balkhi and Tadj (2008) [57] establish a generalized economic order

quantity model for deteriorating items with time varying demand, time-varying
deterioration rate and waiting-time-dependent partial backlogging. The cost
parameters are also assumed to be general functions of time. Necessary and
sufficient conditions for a unique optimal solution are derived.

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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Chun Chen Lee and Shu-Lu Hsu (2009) [60] A two-warehouse

inventory model for deteriorating items with time-dependent demand has been
developed. Compared with previous models, the model involves a free form time-
dependent demand and a finite replenishment rate within a finite planning horizon.
Rather than the heuristic approach of equal production cycle times adopted by Lee
and Ma, an approach which permits variation in production cycle times is adopted to
determine the number of production cycles and the times for replenishment during a
finite planning horizon. Numerical examples are provided to illustrate the
application of the model and the results indicate that the performance of the
proposed approach is superior to that of the heuristic approach of Lee and Ma.

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

2.17 REVIEW OF LITERATURE ON FCM APPLICATIONS IN

PRIORITIZING INVENTORTY OPTIMIZFING VARIABLES

Dhanasekar and Sattanadan (2012) [62] Students in Colleges a well

established Artificial Intelligence technique that incorporates ideas from Neural
networks and Fuzzy Logic. FCM create models as collections of concepts and the
various causal relations that exist between these concepts .The decision capabilities
of the FCM structure are examined and a model developed based on the beliefs of a
domain expert. The model is examined by both statically using graph theory
concepts and dynamically through simulations.

Pedro M. Reyes (2005) [63] The extended two-echelon newsboy

problem for a manufacturer and retailer in a supply chain with asymmetric market
information. In this scenario, the retailer has better knowledge of the market`s
demand, and the manufacturer perceives the same demand. This applied model
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presents how the manufacturer can take advantage of the retailer`s market
information and improve the efficiencies in the supply chain channel.

Ulrich W. Thonemann (2011) [64] Inventory optimization remains one

of the key challenges in supply chain management. Typically, large amounts of
working capital re tied up in today`s supply chains, restricting the opportunities for
growth and impairing profitability. Furthermore, reported inventory figures become
more and more important indicators for investors and other external stakeholders
when assessing the efficiency and health of a company. Still on going trend towards
increasing inventories in process Industries due to stock-outs. It is widely
recognized that the improvement of inventory management and planning offers a
large potential for supply chain cost reduction.

J.J.T. Corstens (Joris) (2013) [65] Due to an increased focus on Just-

in-time supply chain disruptions have exhibited a devastating impact on the profits o
global or locally operating companies. On the contrary, companies try to boost
their profit by jointly or sequentially examining pricing and inventory decisions.
Pricing and Inventory model. Pricing policy for mitigation of disruption risk is
developed. In net inventory is below or equal to a pricing reference inventory level
the prices is increased with a percentage. The effects of using this policy on a
single retailer`s revenue, cost and profit for different scenarios are examinied.

Z. Pelin Bayindir Rommert Dekker, Eric Porras (2004) [66] To

investigate the desired level of recovery under various inventory control policies
when the success of recovery is probabilistic. Recovery process is modeled as a
single stage operation and recovery effort is represented by the expected time spent
for it. The effect of increasing recovery effort on the success probability together
with unit cost of the operation is included by assuming general forms of
dependencies. The desired level of recovery is investigated under four inventory
control policies for a wide range of system parameters. Our computational results
and their managerial implications.
 79

Travis Tokar, Matthew A. Waller, John A. Aloysius (2006) [67]

Training can improve the decision making on inventory replenishment managers.
We use the Beer distribution game to simulate an inventory replenishment
environment and experimentally study the effects of instructional training on
replenishment decisions. The Beer Distribution Game is a simulate four echelon,
decentralized supply chain in which all members make decisions with the goal of
minimizing total inventory holding and stock-out costs to their supply chain. The
criteria we use to measure performance include order variance amplification in the
supply chain and total costs.

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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decision making in the pharmacy supply chain and inventory management of

pharmaceuticals.

2.18 RESEARCH GAP IDENTIFIED

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”.