Inventory management of firms in a vertically integrated system

Subject. The article considers a vertically integrated structure as a sequential technological chain from the perspective of determining the optimal inventory management strategy, which should ensure stable functioning of the system under the influence of random disturbances. Objectives. The aim is to develop a methodological approach to determine the optimal inventory management strategy. Methods. The methodological basis of the research is a combination of systems approach, the theory of inventory management, and the theory of business risk management. I also employed economic, mathematical, and statistical methods of analysis. Results. I developed an effective algorithm for finding the optimal inventory management strategy to ensure stable functioning of the vertically integrated production system as a whole. The optimality criterion for the strategy is the minimum of the total average losses from production capacity shortage and losses from underutilization of production resources. Conclusions. Since stocks in each link have an impact on the total production costs of the parent company's final products and the selling price for wholesale consumers, understanding the optimal inventory management strategy enables to provide for a set of measures to minimize total losses for each production site integrated into the supply chain. The results obtained can be used to develop inventory management strategies at the level of enterprise and supply chain.