COST-EFFICIENT INVENTORY MANAGEMENT STRATEGIES FOR MSMES USING MATHEMATICAL OPTIMIZATION TECHNIQUES

Abstract

Micro, Small, and Medium Enterprises (MSMEs) has an important role in economic development, industrial growth, and employment generation. However, due to the limitations of resources and lack of access to technology, they generally face incredible challenges in supply chain efficiency and inventory management. In this study, a strategic supply chain model for MSMEs is constructed with the objective of reducing the overall cost of inventory—particularly ordering and storage—while retaining efficient inventory levels. The multi-objective mathematical optimization framework has been established incorporating parameters of the real world like the capacity of suppliers, operations of facilities, transport logistics, demand from customers, and inventory dynamics. The model integrates transport flow decision variables, facility status, and inventory levels with supply, demand, and operational feasibility constraints. Objectives include minimizing procurement, transportation, and inventory holding cost, high service levels, and efficient resource usage. The model is validated using simulated datasets of different supply chain situations in the Indian MSME context. Findings indicate that strategic allocation and flow optimization can cut total inventory costs by a significant margin without compromising service quality or availability of stock. This research offers a practical and scalable decision-support mechanism to enhance operational efficiency and cost-effectiveness for MSME supply chains.