Inventory Cost Evaluation in a Vertically Integrated Supply Chain - A Framework and Numerical Examples-

초록

Rising uncertainties and unexpected supply chain disruptions have increased the importance of vertical integration as a strategy for both cost reduction and supply stability. However, most existing studies have focused on risk management, and practical strategies incorporating supply chain integration remain underexplored. This study proposes a formulation-based framework to evaluate total inventory costs, in which the supply chain is designed as a network of nodes and links. The network-wide inventory costs reflect the characteristics of different inventory types at each stage, including raw materials (raw), work-in-process (WIP), and finished goods (FG). Specifically, the model incorporates holding costs at stages (i.e., nodes), in-transit costs (i.e., links), coordination costs, and inventory risk costs-such as opportunity loss due to the limited economic life of inventory, as well as stockout loss costs. This framework provides a quantitative basis for determining which stage of integration is economically justified. From the viewpoint of changes in total inventory cost according to key variables, optimal service levels, and stage-specific break-even points, the applicability of the proposed model was examined through numerical examples. Based on the assumption that integration leads to reductions in unit cost and holding rate, as well as improvements in uncertainty, we presented the changes in total inventory cost by stage. Second, we presented the optimal service level by stage, reflecting the cost reductions from integration. Finally, we presented the break-even point (BEP) to support integration decisions from an economic perspective. If the total cost savings from vertical integration outweigh the coordination cost, vertical integration can not only reduce costs but also improve service levels.

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