A theory of constraints analysis of an arborescent inventory system

Little research has been conducted on the management of large-scale inventory systems. Most current inventory systems extend the use of single-item inventory theory to multi-item, multi-echelon inventory systems. This approach may, however, create severe problems in practice. The catering inventory system of a large airline was examined using the Current Reality Tree (a logic diagram developed by Eli Goldratt as part of his Theory of Constraints) to identify the core problem(s) causing excessive inventory, frequent stock outs, high ordering, expediting and carrying costs, etc. The large lot sizes used at various levels or stages in the supply chain were identified as the core problem in the catering inventory system. A new inventory system composed of time-phased order point, strategic buffering, ABC classification, and multi-item ordering was proposed.