Distributed Inventory

Published by MBA Skool Team, Last Updated: September 12, 2016

What is Distributed Inventory?

Distributed inventory is a concept where in the goods or inventory which is to be given to the retailers & distributors are divided into multiple shipments, each of which is used to fulfill the inventory requirement. Distributed inventory enables the products or goods to reach out to every party of the region where the products have to be sold.

Inventory means to goods and materials that are withheld by a company for use in future. Such goods can include various things such as raw materials, purchased goods etc. The basic aim why an inventory is managed is because one cannot predict sales forecast accurately.

The few reasons for inventory management are:

1. Maintain the operations independently

2. There is lot of variation in product demand so to meet hat

3. There should be flexibility in production scheduling.

4. There is also a lot of variation in raw material delivery so to manage that it is required.

There are two types of control in distributed inventory systems.

I. Centralized

In Centralized systems the decision maker at the highest stage decides on how much inventory should be placed on subsequent stages. It was further suggested that in such type of systems most of the inventory should be allocated to lower stages and few should be kept higher stages. Inventory should be allowed to kept higher stages only if carrying cost and lead time is very less.


II. Decentralized

In decentralized systems every stage will take the decision on its own there is no such one centralized decision maker. One problem with such kind of system is that there are lot of approximations and assumptions need to made to determine the inventory level at every stage.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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