Articlegreen1994

Multi-Echelon vs. Single-Echelon Inventory Control Policies for Low-Demand Items

78 citations0/0 files storedManagement Science

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Supply Chain and Inventory Management Advanced Manufacturing and Logistics Optimization Logistics and Transportation Systems

Abstract

Multi-echelon inventory systems are often controlled as a network of single-echelon inventory systems for simplicity of managerial authority, organizational control, and performance monitoring. This paper explores the amount of suboptimization in such a situation, using an actual demand data set provided by other researchers. We consider low-demand, high-cost items controlled on an (S − 1, S) basis, with all warehouse stockouts met on an emergency-ordering basis. We demonstrate that the suboptimality penalty for this data set is 3% to 5% when single-echelon systems are appropriately parameterized.

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References

1968Metric: A Multi-Echelon Technique for Recoverable Item Control 1985A Multi-Echelon Inventory Model for a Repairable Item with One-for-One Replenishment 1990Simple Solution Procedures for a Class of Two-Echelon Inventory Problems 1966The (S − 1, S) Inventory Policy Under Compound Poisson Demand 1988Estimating the Performance of Multi-Level Inventory Systems 1991Evaluation of One-for-One Replenishment Policies for Multiechelon Inventory Systems 1980Are Multi-Echelon Inventory Methods Worth Implementing in Systems with Low-Demand-Rate Items?1986Batch Size and Stocking Levels in Multi-Echelon Repairable Systems

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2000Decentralized inventory control in a two-level distribution system 2010Common inventory modeling assumptions that fall short: Arborescent networks, Poisson demand, and single‐echelon approximations 2010Determination of the economical policy of a three-echelon inventory system with (R, Q) ordering policy and information sharing 2010Deriving the cost function for a class of three-echelon inventory system with N-retailers and one-for-one ordering policy

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