Performance Analysis of Multi-Echelon Inventory Systems.

Abstract

A two-echelon inventory and distribution system consisting of a centralized warehouse and N stores is considered in this paper. The inventories of the warehouse as well as the stores are controlled by periodic review (s,S) ordering policies. The expected levels of capital investment, storage space needs, capacity requirements for delivery vehicles, and reliable customer service are issues of great importance to practitioners when considering the introduction of a central warehouse and transportation system. Helmut Schneider, Dan Rinks, and Peter Kelle have developed a methodology that has been shown to provide approximately optimal (s,S) policies under various demand conditions, and are easy to handle computationally. The approximations of Schneider et al., are used to generate ordering policies for the two-echelon system in order to observe the behavior of the aggregate inventories generated by the (s,S) policies using computer simulation. The simulation results are used to evaluate the accuracy of the analytic models in predicting the aggregate inventory behavior, and simple computational formulas are proposed to calculate confidence limits for aggregate inventory levels and for shipping volumes and weights