Stock allocation in a two-echelon distribution network under service constraints

Consideration is given to a two-echelon distribution network focusing on the detennination of cost optimal stocknonns under service level constraints. The network we study allows holding stock at both echelons and implements periodic review order-up-to-S policies at both echelons. In the event of material shortages at the depot material rationing is needed. The policy we use allows for each stockpoint to attain a desired service level, which need not be the same across all end stockpoints. We develop distribution-free expressions describing the system dynamics and models for the total system cost and the service constraints. We propose heuristic algorithms for service level computations and use an empirical optimisation procedure to detennine the optimal stocknonns under different system settings. Many theoretical results are validated through simulation, which demonstrates the adequacy of the approximations involved in the analysis.

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