Integrated versus non-integrated inventory management

The increase in the variety of the products and size of the manufacturing organizations, has led to the changes in the organizational structure of companies. Dividing an organization into independent business units, based on the family products, is a common organizational design among companies. As one of the biggest Iranian dairy companies, KALEH Dairy Group has already implemented this design to increase its flexibility in a competitive environment for new product development. KALEHʹs problem now is making decision about products inventory management approach, because most of its products which are included in various groups have two roles. They have their own market demand. Meanwhile, they could act as raw material for some other products. In such condition, inventory management of final product can be done by two approaches. First one is independent inventory management by each business unit and the second one is integrated inventory management. This paper is aimed at showing how to help managers to choose appropriate mechanism for inventory management. To do so, a mathematical model is developed for integrated status and the results are compared with EPQ (Economic production quantity) model. The final results of mathematical model show that for products with two roles, the integrated inventory management imposes less costs on the company.