Inventory management in the food industry-centralization vs decentralization

Inventory management has become a topic of broad interest as a way for improving competitive performance though higher service levels at a lower cost. Inventory management strategies are numerous and the trade-off between centralization vs. decentralization of inventories is known as a suitable technique to balance inventory cost with service level. The food industry is one of the largest segments in the EU’s manufacturing sector and presents a challenging management of its supply chain due to its increasing complexity and changing environment. With competition being fiercer than ever, inventory management is a major concern in many food supply chains in which speed and flows of information and products become essential to reduce costly waste and keep customer satisfaction at the highest level. This paper aims to understand how inventory centralization and decentralization strategies can help food companies managing its inventory in the most appropriate way. The intention is to provide managers with recommendations on how inventory management is improved on the basis of relevant literature and to extend what is already known in the previous supply chain management field. The thesis conducts a single case study research in one of today’s leading food companies. Reasons for improving inventory management practices are found in high supply chain related costs, high amount of capital tied up in inventory and long and uncertain lead times from production until the end-consumer. The pre-assumption is that higher inventory rotation and lower costs can be attained by implementing inventory centralization strategies. However, reducing the number of inventory locations increases distances from warehouse to customer, increasing transportation costs and possibly reducing service level. Therefore, identifying the appropriate balance between centralizing vs. decentralizing inventory is of key importance. This research provides a broader and multidisciplinary approach to centralization and decentralization inventory challenges. It identifies the key factors and its influence on the degree of inventory centralization in the food industry regarding finished goods. Hence, even though literature presents models on how to determine optimal inventory configuration, these are generally focused in fewer factors and lack of particular applicability into the food industry. This work, therefore, aims to close part of this gap by proposing a holistic decision making framework releva