Question

In the automotive industry there are three types of suppliers ranging from parts and components suppliers to systems and modules suppliers.

The supply chain works as follows:

Parts Suppliers (Tier 3) >> Components Suppliers (Tier 2) >> Systems and Components Suppliers (Tier 1)  >> OEM (Assembly Plant)

Tier 1 is a supplier that ships directly to the Assembly plant properly and strictly sequenced (Just In Time). Sequencing depend of the actual current demand. Tier 1’s goods are received and assembled straight in the OEM plant. No inventory (JIT).

Tier 2 and Tier 3 no necessarily ship sequenced and according to short term demand and forecast.

what’s the most proper inventory model for every of the Tier suppliers?

Answer 1

Answer:

Tier 1 supplier i.e. parts supplier applies a probabilistic type of inventory model as it uses just in time i.e. the material will be ordered only when the demand arises from the customer. Thus, tier 1 is not sure for the demand pattern and the amount of inventories that are required to be stored for the future production.

Tier 2 and tier 3 suppliers i.e. component supplier and system and component suppliers applies a deterministic type of inventory model as it does not use just in time and the material is ordered for fulfilling the short term demand according to the forecast.