Track: Case Studies

Abstract

Effective inventory management influences every aspect of a firm’s operations. Inventory management in developing countries is a difficult business process because firms do not use basic inventory control concepts and techniques. Moreover, developing countries are characterized by trade imbalances with developed countries due to process inefficiencies, bureaucracy, and communication problems. This leads to longer lead times and supply uncertainty. Consequently, firms attempt to overcome the supply uncertainty by carrying unnecessary amounts of buffer stocks. We analyzed the inventory management system of an international lifestyle product retailer in Bolivia and found that, as the literature predicted, the firm showed no use of basic inventory control techniques. Particularly, it did not make data-driven decisions, lacked an effective inventory management system, or knew which products had higher consumer demand, and thus worked under a high level of supply uncertainty and inventory management illiteracy. Therefore, to reduce supply uncertainty, we developed a new inventory management system based on two strategies: (a) strategies to reduce demand uncertainty; and (b) strategies to reduce process uncertainty. Specifically, we implemented triple exponential smoothing for product demand forecasting, ABC segmentation to identify the most important products in the firm’s portfolio, the newsvendor model to determine optimal inventory levels, powers-of-two policies, to optimize reorder times, and Turnover Based Metrics to arrange SKUs in the warehouse. Overall, our results suggest the significance of taking into account the country in which any firm operates. Hence, it should not be a surprise that in developing countries firms show high buffer stocks and generally adopt reactive flexibility practices.