PROJECT # 02

PROJECT # 02



PROJECT # 02

Introduction

In Supply Chain Management (SCM), the inventory control problem is very complicated and challenging because the planner needs to consider several factors, for example, supply chain structures, coordination levels, and information sharing processes. The inventory control policy used by each entity is also an important factor because it affects the inventory replenishment process of the upstream entity. The upstream demand may be distorted and far from the actual demand faced by the downstream entity.

This phenomenon is known as the Bullwhip Effect, which is presented in Forrester (1961). Many classical inventory control systems (s,Q, s,S, R,S, R,Q, and R,s,S, etc. where s, Q, S, and R denote reorder points, reorder quantities, order-up-to levels, and periodic review periods, respectively) are still used in the supply chain environment. However, determination of their control parameters is very difficult.

For SCM, all entities in the supply chain should be planned and controlled simultaneously to obtain good control parameters and low inventory costs. The aim of this paper is to develop a new inventory control system called the inventory/distribution plan (IDP) control system that determines optimal product flow through a one-warehouse multi-retailer supply chain under both stationary and non-stationary uncertain demand situations.

The IDP control system controls each supply chain member using the optimal IDP operating under a one-period rolling horizon planning strategy. The optimal IDP is obtained by solving a proposed mixed-integer linear programming model. The performance of the proposed IDP control system is compared with that of the echelon-stock R,s,S control policy since both systems are similar in many aspects. The main contribution of this paper is the development of IDP control system that has good performances under both stationary and non-stationary uncertain demand situations. This paper also proposes a practical way to determine appropriate safety stock factors at the warehouse and retailers that yield relatively low total costs while maintaining relatively high fill rates.

A supply chain model

A supply chain under consideration comprises of one-warehouse and multiple identical retailers as depicted in Fig. 1. It faces uncertain demand of a single product. When the demand is not satisfied, it is considered as a lost sale. The retailers replenish their inventories from the central warehouse, which in turn replenishes its inventory from an incapacitated vendor outside the concerned supply chain. It is assumed that all storage and transportation capacities are unlimited.

Transportation occurs after orders have been placed from the destination. Lateral transshipments between retailers are not allowed. The related costs are ordering, holding, intransit holding, transportation, and lost-sale costs. If insufficient products are sent to fulfill customer demands, the system would have low fill rate and high lost-sale cost. In contrast, if excessive products are sent instead, the system would have high holding cost. Moreover, place and time of delivery also affect the system fill rate and total cost.

Sending products to a wrong place in an inappropriate period may result in both low fill rate and high ...