ABSTRACT
Each product travels a path from where it consists of one or several raw materials and ends up in the hands of the consumer as a finished good. Along the way it goes through several manufacturing or other transformation processes. For example, consider a petroleum-based product, say gasoline, which starts as crude oil and is transported to a refinery where it is processed into its final form. Assume that the crude oil is transported to the refinery in tankers that arrive at certain intervals. Obviously, the refinery cannot work intermittently; it requires a continuous input of crude oil, forcing it to build holding spaces to store crude oil from tankers and then to use it at a continuous rate. Also, after producing gasoline the refinery cannot sell it at the exact rate at which it is produced. The refinery will need storage tanks to store its gasoline production and supply it to its users, that is, gas stations, according to demand. A little further down the path gas stations themselves cannot ask
and Science
people needing 10 gallons of gasoline to wait until they can get this exact amount from the refinery. Thus, each gas station builds a storage tank that is filled by the supplies from the refinery and provides small amounts of gas to each car that comes to the station. The amount of raw material, semi-finished or finished product held at each node in the supply chain (SC) is referred to as the inventory level of that particular material at that node. Inventories are a part of our daily life; careful observation will show that we store (or hold inventories of) many items. One needs to look no further than the kitchen at home to see inventories of vegetables, milk, and the like. Running to the grocery store every time we want a glass of milk would be inefficient (and costly)!
