On the link between inventory and responsiveness in multi-product supply chains

Manufacturing systems in many industries face the challenge of manufacturing products that are assembled from multi-variant components. Demand for these component variants is correlated, and often subjected to an overall capacity constraint (e.g. fixed production volumes in the final assembly plant). Therefore, the modelling of supply chain systems under multi-variant product conditions is conceptually difficult as the demands for the individual variants are not independent. Previous approaches to modelling supply chain systems have commonly dealt with this complication by either focusing on single-product multi-tier systems, or single-tier systems with multiple products. In this article, we propose a modelling approach capable of studying the responsiveness of multi-tier systems with correlated demands, which is used as the input for a simulation model. Based on the simulation outcomes, generic relationships between product variety, responsiveness and inventory levels in a supply chain system are derived; and a novel safety stock formula for such settings is developed.