An Approach for Setting Inventory Norms for a Two-Echelon Supply Chain

Managing inventories is crucial to the objective of minimizing supply chain costs. This paper presents an approach for setting inventory norms in context of a real-life case of an industry which practices Vendor Managed Inventory (VMI). The role of warehouses and the inventories held by them becomes significant in such an environment. This paper presents a two-phase approach to determine various components of inventory norms taking into account lead time and demand variability. Innovative strategic product classification has been done to decide upon stocking quantity at warehouses.