Service Level Relationships in a Multi-Echelon Inventory System

Abstract

This paper deals with a multi-echelon inventory system consisting of one central Distribution Center (DC) which is the source of supply for any number of Regional Distribution Centers (RDC's) which are the source of supply for customer demand. It develops and tests through the use of simulation a heuristic for determining what level of service the customer receives given any combination of DC and RDC service levels, where service is defined as the fraction of demand met from on-hand inventory at the location where the order is placed. A number of different combinations of DC and RDC service level will achieve any given level of customer service. The criterion used to identify the best combination is the minimization of the average level of total system inventory.

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