Optimising installation (R,Q) policies in distribution networks with stochastic lead times: a comparative analysis of guaranteed- and stochastic service models

Niels De Smet, El-Houssaine Aghezzaf and Bram Desmet

International Journal of Production Research, 2019, vol. 57, issue 13, 4148-4165

Abstract: This paper studies two modelling approaches to the multi-echelon inventory optimisation problem in a distribution network with stochastic demands and lead times. It compares the performance of a novel guaranteed-service model (GSM), using an installation (R, Q) inventory control policy, with a stochastic service model (SSM) considering ordering, holding and flexibility costs. From both cycle service level and fill rate perspectives, our numerical analysis of the 1-warehouse 2-retailer network shows that cost difference between both models is driven by the internal service level at the warehouse. The GSM outperforms the SSM for over 80% of the simulated instances and realises an average total cost improvement of approximately 10%. This analysis goes against earlier results that showed a relatively low-cost difference between the two approaches, and demonstrates that it is worthwhile to evaluate competing models for multi-echelon inventory optimisation in real-world supply chains with batch ordering and variable lead times.

Date: 2019
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Citations: View citations in EconPapers (3)

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DOI: 10.1080/00207543.2018.1518606

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