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Multi-item two-ehelon inventory-distribution system design: a case study

Bulur, Hakan
In this study, inventoryاdistribution system of a company operating in Fast Moving Consumer Goods (FMCG) industry is analyzed. The system is a multiاitem, two-echelon, divergent inventoryاdistribution system with transportation constraints. The warehouses in the system are nonidentical and all of the warehouses are allowed to hold stock. The goal is to achive target customer service levels. Throughout the system, inventory is controlled by echelon stock periodic review (R, S) order-up-to level policy. The problem is the determination of inventory control parameters in the system and effective replenishment of the inventories of many items at regional warehouses under transportation constraints. An approach consisting of three modules operating in a hierarchy is developed to manage the system. The approach calculates the inventory control parameters of the items (order-up-to levels at the regional warehouses and stock allocation fractions); determines the replenishment periods of the items with the objective of balancing the vehicle requirements among periods and performs the daily replenishment of inventories minimizing the maximum deviation from the inventory policy under transportation constraints. A heuristic approach is adapted from the literature for the inventory control parameter determination part of the approach; an IP model is formulated for the replenishment period scheduling part and a MIP model is constructed for the replenishment process. The proposed approach is simulated with retrospective data of the company and compared with the existing system in the company, in terms of the performance measures defined. Satisfactory results are obtained with the proposed system.