Are Multi-Echelon Inventory Methods Worth Implementing in Systems with Low-Demand-Rate Items?

John A. Muckstadt and L. Joseph Thomas
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John A. Muckstadt: Cornell University
L. Joseph Thomas: Cornell University

Management Science, 1980, vol. 26, issue 5, 483-494

Abstract: In practice, most multi-echelon inventory systems are managed using adaptations of single location methods. This paper shows that such methods can be dramatically inferior to methods designed to take advantage of a system's structure. This is especially true in repair parts inventory systems where most items have low demand rates. In this paper we describe a multi-echelon method adapted to a particular situation. Data taken from a large (over $100 million investment) industrial inventory system are used to provide comparative results on overall inventory required to meet a given service level. The multi-echelon method used involves an (s - 1, s) ordering policy and Poisson demand, both of which are appropriate for low demand items; this method requires much lower total investment than the single-location method requires to achieve the same average level of performance. Thus it appears that multi-echelon methods are worthwhile in many situations.

Keywords: inventory/production:; multi-echelon; systems (search for similar items in EconPapers)
Date: 1980
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