Multi-echelon inventory modeling and supply redesign

Abstract

Many businesses struggle to optimize the flow of inventory and finished goods through existing plants and facilities. The integration of inventory costs, organizational processes, and changing business dynamics make it difficult to determine the optimal flow. This thesis examines the flow of raw materials and finished goods through the supply chain of a multi-national oilfield services company. We study a centralized inventory approach, assessed through heuristics, against the existing decentralized approach. Sensitivity analysis with regard to service level, and mode of transport strengthened the analysis. We show that demand aggregation and lead time are important factors in determining the upper echelon for a company's internal distribution model. Potential safety stock reduction is 2%, which is mainly due to the improved coordination for materials flowing to the final echelon in the supply chain. However, pipeline inventory increases by 12% as a result of longer lead times.