Optimization of multiechelon inventory system for cost effective supply chain

Abstract

The objective of this study is to find an optimal inventory distribution policy in a multi echelon supply chain environment (manufacturing plant, distribution center and retailer) by collaborative approach considering a target service level. An inventory model is developed by replicating echelons periodic, order up to level policy. The total inventory cost is set as an objective function, while the retailer’s service level and the retailer's minimum order up -to-levels are set as constraints. The model tries to find out an optimal allocation of inventory at different echelons. This optimal solution sets target service levels at the same time the total inventory cost is significantly reduced.