Safety stock allocation in a two-echelon distribution system

Abstract In this paper, an analytical method for determining the optimal system stock in a two-level arborescent inventory system subject to management-specified customer service constraints is presented. The system examined consists of one central warehouse and N not necessarily identical regional depots all operating under daily review (lot-size, reorder-point)-policies and facing stochastic demands. Transshipments between depots are not allowed. Analytical approximations of the warehouse demand process are derived and tested via computer simulation. It is shown that the probability distribution of the warehouse service time (the lead time seen by a depot replenishment order, which may include a transshipment time) plays a key role in the optimal allocation of system safety stock. Based on the author's earlier work an analytical approximation of the warehouse service time probability distribution is used to solve the problem.

[1]  K. Moinzadeh,et al.  Batch size and stocking levels in multi-echelon repairable systems , 1986 .

[2]  A. Alan B. Pritsker,et al.  Introduction to simulation and SLAM II , 1979 .

[3]  L. B. Schwarz.  A Model for Assessing the Value of Warehouse Risk-Pooling: Risk-Pooling Over Outside-Supplier Leadtimes , 1989 .

[4]  Amiya K. Chakravarty,et al.  Simulated safety stock allocation in a two-echelon distribution system , 1986 .

[5]  Paul H. Zipkin,et al.  Estimating the Performance of Multi-Level Inventory Systems , 1988, Oper. Res..

[6]  Sven Axsäter,et al.  Simple Solution Procedures for a Class of Two-Echelon Inventory Problems , 1990, Oper. Res..

[7]  D. Gross,et al.  The Effect of Reducing Leadtime on Inventory Levels-Simulation Analysis , 1969 .

[8]  Barbara Amdur Rosenbaum,et al.  Service Level Relationships in a Multi-Echelon Inventory System , 1981 .

[9]  J. Muckstadt.  A Model for a Multi-Item, Multi-Echelon, Multi-Indenture Inventory System , 1973 .

[10]  Paul van Beek,et al.  Modelling and analysis of a multi-echelon inventory system A case study , 1981 .

[11]  L. B. Schwarz,et al.  Fill-Rate Optimization in a One-Warehouse N-Identical Retailer Distribution System , 1985 .

[12]  Graham K. Rand,et al.  Decision Systems for Inventory Management and Production Planning , 1979 .

[13]  P. Jackson.  Stock allocation in a two-echelon distribution system or “What to do until your ship comes in” , 1988 .

[14]  Paul H. Zipkin,et al.  Approximations of Dynamic, Multilocation Production and Inventory Problems , 1984 .

[15]  Craig C. Sherbrooke,et al.  Metric: A Multi-Echelon Technique for Recoverable Item Control , 1968, Oper. Res..

[16]  E. Silver,et al.  Stock allocation among a central warehouse and identical regional warehouses in a particular push inventory control system , 1987 .

[17]  Ralph D. Badinelli,et al.  Backorders optimization in a one-warehouse N-identical retailer distribution system , 1988 .

[18]  Kok de Ag,et al.  Distribution planning for a divergent 2-echelon network without intermediate stocks under service restrictions , 1993 .

[19]  Horst Tempelmeier,et al.  Inventory control using a service constraint on the expected customer order waiting time , 1985 .

[20]  Edward A. Silver,et al.  Analysis of a two-echelon inventory control system with complete redistribution , 1987 .

[21]  Kamran Moinzadeh,et al.  Two-Parameter Approximations For Multi-Echelon Repairable Inventory Models With Batch Ordering Policy , 1987 .