6020SSL International Logistics
Part 1: Introduction
Effective inventory management has been managing the supply chains for operating the business by dynamic along with uncertain business environment nowadays. This report is focused on analyzing the methods and procedures for inventory management used by BP British Petroleum. It examines strategies to reduce the risks of stockouts and obsolescence and assesses various logistics techniques.
Part 2: Critically discuss the approach in inventory in MNC to identify fundamental change in the pandemic
“Multinational corporations’ (MNCs’)” ability to manage their supply chains and operations effectively depends on the organization of critical inventory functions. Organizing the inventory functions at “BP (British Petroleum)”, a multinational energy company, presents particular difficulties.
- Demand Forecasting:
The demand forecasting in BP’s stock department was probably based on past data, market trends, and projections before the pandemic. Energy demand has fluctuated significantly as a result of lockdowns, travel restrictions, and economic slowdowns. In order to account for these new factors and ensure inventory levels matched the volatile market, BP had to modify its demand forecasting models (Whittle, Vaara, & Maitlis, 2023).
- Supply Chain Management:
BP’s management of supply chains typically entails intricate webs of “distributors, oil refineries, warehouses, and suppliers”. Lockdowns, restrictions on transportation, and a lack of labor have caused the pandemic to disrupt global supply chains. In order to ensure the continuous flow of essential inventory, such as chemicals and petroleum-based goods, BP had to review and modify its supply chain strategies (McNamara, & Newman, 2020).
- Inventory Optimization:
BP seeks to achieve the right balance between reducing holding costs and maintaining an adequate supply of inventory to meet customer demand. In order to mitigate the risks brought on by abrupt changes in demand, production interruptions, and supply chain bottlenecks, BP had to review its “inventory models, levels of safety stocks, and replenishment strategies” (Roscoe et al. 2022).
- Risk Management:
The pandemic triggered BP’s inventory organization to set a higher priority on risk management. It required a thorough analysis of inventory shortages, supply chain shortcomings, and operational disruptions (McNamara, & Newman, 2020).
2.1 Critically Analyze logistics practices
BP employs a variety of logistics strategies in various industries and locations as a crucial energy provider. In order to assess these customs, a thorough examination of supply chain cooperation, inventory management, and storage by the “Department of Transport (DOT)” is required. Effective distribution systems, strategic placement of storage facilities, the use of modern technologies for monitoring and tracking deliveries, and close collaboration with suppliers and partners are all part of “BP’s logistics processes” (Mastos, & Gotzamani, 2022). While addressing the unique challenges faced by the energy sector, such as the transportation of hazardous materials and adherence to stringent regulatory requirements, the critical evaluation of these procedures should also consider their effectiveness in “maximizing savings, decreasing environmental effects, maintaining safety and compliance, and adjusting to volatile market conditions” (Debnath et al. 2023).
2.2 Examine the implications of inventory holding and replenishment policy
“Storage holding and replenishing policies” within BP have significant implications, while also taking other logistics operations and business constraints into consideration. “Transportation (DOT) logistics”, and order fulfillment are merely some of the areas of the supply chain that are impacted by “efficient inventory management”. The level of inventory holding, and frequency of replenishment should be determined by factors such as “demand trends, lead times, storage capacities, along with available budgets” (Wieczorek, & Ignaciuk, 2022). It is necessary to consider business constraints like regulatory compliance, sustainability objectives, and safety requirements when determining inventory policies that “support operational and strategic objectives”, and “ensure industry compliance, and minimize environmental impacts” (Poi, & Nwokah, 2022).
2.3 Critically evaluate transport mode strategy
It is essential to consider both domestic and international distribution requirements when assessing and choosing a transport mode strategy for a company like BP British Petroleum. “Price, acceleration, dependability, ability, and environmental impact” are all important considerations for critical evaluation (Griffiths et al. 2021). A comprehensive strategy is necessary given BP’s different product portfolio, which includes chemicals, renewable energy, and petroleum products (Yaacob et al. 2020).
Part 3: Discuss the role as well as importance by inventory in the supply chain
3.1 The role of inventory in the supply chain based on customers’ needs:
Inventory is essential for BP British Petroleum’s supply chain as it allows for adaptation and adaptability to meet customer demands. Within the stages of production and demand, it serves as a buffer, enabling effective coordination and better customer service. As a result of its inventory, BP can react quickly to shifting consumer demand, shifting market conditions, and unforeseen disruptions (Nandi et al. 2021). By strategically placing inventory throughout the supply chain, BP can improve its responsiveness, reduce stockouts, and guarantee a consistent supply of energy-related goods to satisfy customer needs (Ariadi et al. 2021).
3.2 Mitigating the risks associated with stockouts along with obsolescence:
Inventory is essential to reducing the risks of stockouts and obsolescence in the BP British Petroleum supply chain. Customer discontentment, lost sales, as well as reputational harm can result from stockouts, which happen when there is not enough inventory to meet demand from customers. BP can reduce the possibility of stockouts by keeping adequate inventory levels and ensuring a consistent supply of energy products for its clients. Additionally, inventory management aids BP in reducing the risk of obsolescence (Naghshineh, Fragoso, & Carvalho, 2023). Technological advancements and shifting market dynamics may make some products or components in the energy sector obsolete. It enables them to adjust to market changes and maximize inventory turnover, minimizing the financial impact of out-of-date goods. In this BP to achieve an equilibrium between ensuring the availability of products while decreasing the risks of stockouts and obsolescence, effective inventory management practices, including forecasting demand, inventory optimization techniques, and assertive replenishment strategies, are essential (Opoku et al. 2020).
Part 4: Describe the main approaches for managing inventory
4.1 Strategies for managing inventory:
BP British Petroleum uses a variety of strategies to manage inventory well and streamline its supply chain procedures. Among the main methods are:
“Just-in-Time”:
BP may implement JIT principles to reduce inventory holding costs and boost operational effectiveness for inventory and producing goods just in time to satisfy customer demand, for excess inventory and related carrying costs (Mbugi, & Lutego, 2022).
“Economic Order Quantity”:
EOQ is a popular inventory management model that determines the ideal order quantity to reduce overall inventory costs. BP can use this method to calculate the ideal quantity like demand, ordering expenses, as well as holding costs (Asuzu et al. 2020).
“Safety Stock”:
In the event of unanticipated demand fluctuations, supply chain disruptions, or lead time variability, BP may keep safety stock and an additional inventory buffer (Mbugi, & Lutego, 2022).
“ABC Inventory Analysis”:
BP can use ABC analysis to classify inventory items according to their value and importance by providing inventory management efforts a top priority and ensuring the best inventory levels for high-value items (Asuzu et al. 2020).
“Demand Prediction”:
In order to accurately forecast future customer demand, BP uses demand prediction techniques including inventory levels, production schedules, and supply chain planning by historical data, market trends, as well as other relevant information.
“Inventory Management Software”:
BP may use cutting-edge inventory management software to automate and streamline inventory-related tasks based on demand forecasting, monitoring stock levels, and optimizing reorder points, along with enhancing overall inventory visibility and management (Tusar, & Sarker, 2022).
4.2 Approaches for managing inventory
BP has been utilizing various advanced “inventory management techniques” for enhancing supply chain operations. Some of these techniques include:
“Barcoding and Radio-Frequency Identification”:
Barcoding, also known as RFID technologies, may be used by BP to precisely track and manage inventory. The use of barcodes and RFID tags on merchandise enables effective data collection, immediate stock visibility, and automated stock control procedures (Tusar, & Sarker, 2022).
“Cycle Counting”:
Cycle counting is the process of periodically counting certain categories of inventory items over a single year.
“Kanban Systems”:
Kanban systems can be used by BP to replenish stock based on actual use as opposed to forecasts. Through this strategy, waste and surplus inventory are prevented because inventory is only replenished when it is needed (Asuzu et al. 2020).
“Collaborative Planning, Forecasting, and Replenishment”:
CPFR enhances supply chain efficiency, cuts lead times, and improves customer service through exchanging information, coordinating forecasts of demand, and aligning inventory replenishment.
Part 5: Understand demand variability by supply chain in stocking of inventory
The bullwhip effect is the term used to describe the phenomenon in which small variations in demand at the customer end of the chain of supply can become more pronounced as they move up the chain, leading to either an overstocking or a shortage of inventory. The COVID-19 pandemic is an excellent example of how demand volatility can result in the bullwhip effect in the BP British Petroleum supply chain. The pandemic caused significant disruptions in the energy sector as a result of altered patterns of energy demand due to travel bans, global lockdowns, and economic uncertainty. The demand for certain energy products dropped precipitously as consumer behavior rapidly changed, causing a surge in buying in a panic (Hasan et al. 2022). In contrast, the ensuing drop in demand led to understocking because the bullwhip effect caused the amount of stock to overcorrect. In order to meet potential market rebounds or changes in demand patterns, suppliers and distributors cut back on their orders as consumer demand abruptly decreased.
For BP, managing inventory was difficult due to the COVID-19-induced demand variability. At first, overstocking resulted from panic buying as people piled up necessities like petrol and heating oil. As a result of the sudden increase in “demand, suppliers and distributors increased” their orders and inflated their inventories. The energy demand, however, fell as restrictions and travel restrictions were implemented, creating excess inventory and the possibility of monetary losses for BP and its supply chain partners (Ramos et al. 2021). These include raising the accuracy of demand forecasting, fostering closer supplier and distributor collaboration and information sharing, carrying out real-time data sharing through “IoT and AI technologies”, and “introducing agile supply chain practices”.
Part 6: A resilient inventory design in the Organization
6.1 Building a resilient inventory design by inventory management strategy
BP is developing a resilient inventory design. In order to ensure efficient inventory management in the face of unforeseen circumstances and changes, British Petroleum takes a variety of factors into account. It is necessary to consider variables like demand variability, supply chain disruptions, lead time variations, and market dynamics. BP has been focused on useful inventory management plans such as “demand forecasting”,” safety stock levels”, “effective replenishment procedures”, “supplier collaboration”, and “the use of cutting-edge technologies” into account (Suresh, Sanders, & Braunscheidel, 2020).
6.2 Steps to create a resilient inventory design:
The steps for creating a resilient inventory design for BP:
- “Demand forecasting with clearly”: it can be using historical data, historical analytics, along with variety of scenarios based on forecast demand.
- Safety Stocks diagrams: Keep an adequate amount of safety stock diagram for providing the protections protect against unanticipated changes in supply chain disruptions (Emenike, & Falcone, 2020).
- Partnership with suppliers”: it can be providing the trusting relationships with suppliers based on the terms and conditions transparent by sharing, coordinated inventory management procedures for managing communication.
- “The term real-visibility”: Make use of technology and data analytics to provide real-time inventory visibility, which enables proactive decision-making and prompt responses to changes.
- “Supply Chain Diversification”: Examine the supply chain and make it more diverse to reduce risk, rely less on a single source, and have backup plans in case of disruptions (Chen et al. 2022).
- “Continued Enhancement”: Regularly assess and improve inventory management procedures, identifying potential areas for enhancement and putting novel ideas into practice.
Figure 4: Ways of build a resilient inventory design
(Source: Self developed)
Part 7: Recommendation
Increasing Forecasting of Demand:
Invest in cutting-edge technologies and methods for demand forecasting to increase precision. Adapt inventory levels to changing demand by incorporating real-time data, intelligence on the market, and statistical analysis.
Adapting “Agile Inventory Management”:
Implementing JIT principles and utilizing lean inventory techniques are instances of agile inventory management practices. Through this strategy, BP can cut back on the costs associated with keeping inventory on hand, shorten lead times, and react rapidly to changes in the market (Naghshineh, Fragoso, & Carvalho, 2023).
Development Supplier Collaboration:
Programs like collaborative forecasting, planning, and replenishment (CPFR), promote closer cooperation with suppliers.
Effective Technology:
Invest in cutting-edge technologies like barcoding, which is RFID, and IoT, as well as inventory management software. Real-time visibility is improved, inventory tracking is automated, procedures are streamlined, and proactive decision-making is made possible by these tools (Whittle, Vaara & Maitlis, 2023).
Part 8: Conclusion
In conclusion, BP British Petroleum needs to maintain an effective inventory management system in order to keep a dependable and effective supply chain. BP can reduce risks, improve customer satisfaction, and optimize inventory levels by implementing strategies like JIT, EOQ, safety stock, and ABC analysis. Visibility and control are further enhanced by utilizing “cutting-edge technologies” like “barcoding, RFID, and inventory management software”. Success also depends on ongoing efforts to improve and collaborative planning with suppliers.
Reference
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