Comparative Analysis of Two Echelon Inventory Method in a Large Scale Iron and Steel Industry

Abstract: A two echelon system of a supply chain may consider the two stages as separate or simultaneous. This paper studies a two-echelon inventory system with a large steel company warehouse and analyses the effect of applying two approaches in supply chain management. The dispatch data of one year is taken for the dispatch of goods from warehouse and retailers and the total cost of ordering is calculated for the past data under two scenarios. In particular inventory management system approach considering separate system is having more cost comparing to simultaneously inventory management. The cost component in a supply chain is particularly very crucial for a heavy and capital chain like steel industry where the operating margins and business leverage are very narrow. Study has been done analyzing the cost component but the approach adopted in paper can also be applied to analyze value addition in a supply chain using different approach.

Keywords: EOQ, Inventory management, two-echelon inventory system, cost optimization.