Multi-echelon inventory management: Inventory control Roberto Pinto CELS Dept. of Engineering University of Bergamo How to control multi-echelon? In single-site inventory control, the inventory policies consider local information: For example, in the ROP-model, the reorder point depends upon the inventory position at the considered site Inventory position d 2 1
How to control multi-echelon? producing in? Cur. 0 Cur. 40 Cur. 20 Cur. 20 Cur. 20 Cur. 20 3 How to control multi-echelon? Since the inventory in is zero, we may want to start producing immediately The optimal inventory level in one facility may depend on the inventory levels and demand in other facilities in other echelons 4 2
How to control multi-echelon? Define: Installation (IS): inventory position (i.e. on hand + incoming order backorder) in a given facility (ES): sum of the inventory position in a given facility and the inventory positions in all downstream facilities set of downstream facilities served by facility 5 How to control multi-echelon? producing in? 120 Inst. 40 120 6 3
How to control multi-echelon? producing in? Coverage = / average demand 120 Coverage 6 w Inst. 40 120 Coverage 6 w 7 How to control multi-echelon? producing in? End of period 3 60 Coverage 3 w Inst. 40 60 Coverage 3 w 8 4
How to control multi-echelon? producing in? Beginning of period 4 On-going production 60 units 60 Coverage 3 w 60 Coverage 3 w 9 How to control multi-echelon? producing in? Beginning of period 5 100 Coverage 5 w In-transit (60) 40 Inst. 10 10 Inst. 10 10 Inst. 10 10 Inst. 10 10 10 5
How to control multi-echelon? producing in? Beginning of period 6 80 80 11 Warnings The echelon- looks at the inventory position in the downstream channel; thus decisions can be based on global information The echelon- looks at the aggregate inventory position; thus, it does not properly capture any unbalance in the distribution of the inventory in the channel 12 6
Warnings Example of unbalance 120 Inst. 40 120 0 0 0 Inst. 80 80 13 References Chopra, S., Meindl, P. (2010). Supply Chain Management (4 th edition), Pearson Brandimarte, P., Zotteri, G. (2007), Introduction to Distribution Logistics, Wiley-Interscience Cavalieri, S., Pinto, R. (2007), Orientareal successo la supply chain, ISEDI 14 7
Credits CELS University of Bergamo Roberto Pinto Ph.D Logistics and Supply Chain Specialist http://cels.unibg.it roberto.pinto@unibg.it 15 8