Browsing by Subject "inventory pooling"

The purpose of this case study is to examine the possibilities of holding commodities for a commodity processing company with limited storage capacity. The study examines the optimal holding time and volumes for the commodity, whether holding stocks is profitable, and whether holding stocks can improve the overall operational efficiency of the company. The reasons for this study is, (a.) that the case company seeks to increase its coffee stocks, by using an external warehouse to meet the forecasted decrease of deep sea freight capacity, (b.) that an increase in uncertainty in the origin country is observed, and (c.) the case company aims to gain financial advantage from potential increases in the commodity’s market price. The commodity in question is Brazilian green coffee, and the case company seeks to financially benefit from the storage for its own internal use, and not for arbitrage. This study utilizes the theory of storage as an essential theory. We use the concept of convenience yields from the theory storage, since the study examines a futures-based commodity trade. A second focal theory is inventory management, and especially inventory pooling. Inventory pooling is chosen here, because the case company consumes the green coffee from the external warehouse for its own production processes besides its on-site warehouse. The two theories are presented in their own chapters and these are used to create the study’s theoretical framework. There is an abundance of prior research on both theories. There is, to the best of our knowledge, no prior study into combining the theory of storage and inventory management. Thus, this study sets out to combine these two and examine the usefulness of combining these two theories. The research data is partly provided by the case company, and partly from open sources, such as commodity futures prices. For analyzing the data, we use existing methods presented in the literature. With these methods, we examine the optimal holding times and inventory levels for a two-location warehouse system. The results suggest that the profitable time for holding stocks is rather short, and that the optimal inventory levels for the external location are relatively low, when compared to total inventory levels. We conclude that this study potentially provides a solution for both financial gains and operational increases in efficiency.