Simulated safety stock allocation in a two-echelon distribution system

Abstract

This paper deals with two important decisions in a two-echelon inventory system operating under stochastic demand and stochastic leadtime. The first of these decisions is the aggregate level of safety stock carried in the system, The second decision is the allocation of the total safety stock within the system. A simulation is performed to study the sensitivity of the system to both decisions. Based on the study, guidelines for efficient management of safety stocks in a two-echelon inventory system are suggested.

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