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Analysis of a two-echelon multi-item inventory system with postponement

Eryılmaz, Hande
Increased product proliferation and global competition are forcing companies within the supply chain to adopt new strategies. Postponement is an effective strategy that allows companies to be agile and cost effective in dealing with the dynamics of global supply chains. Postponement centres around delaying activities in the supply chain until real information about the market is available, which reduces the complexity and uncertainty of dealing with a proliferation of products. A two-echelon divergent supply chain entailing a central production facility and N retailers facing stochastic demand is studied within the inventory-distribution system. A periodic review order-up-to strategy is incorporated at all echelons. Unique to the study, five different systems are created and the effectiveness of several postponement strategies (form and transshipment) under various operational settings are compared. The importance of postponement under an integrated supply chain context and its contribution to various sector implementations are also discussed. Simulation is used to analyze the performance of the systems especially with respect to cost, order lead time and the effectiveness of transshipment policies. The study is unique in determining factors that favour one system implementation over another and distinguishing sector requirements that support postponement. In the study, postponement is found to be an effective strategy in dealing with managing item variety, demand uncertainty and differences in review periods in the two echelon supply chain for different experimental settings.