Inventory deployment and market area segmentation in a two-echelon distribution network design

Abstract

Most of the logistics systems involve a multi-level distribution system structure due to value added by a multi-level configuration. Interactions of these levels, i.e. echelons, should be considered while making strategic decisions regarding the choice of the size, number and location of stocking sites as well as the tactical decision regarding the choice of inventory policy to be used. We analyze a two-echelon distribution network to characterize the market segmentation of each echelon and inventory deployment between the two-levels. Allocation of stock under a stochastic demand structure is considered simultaneously with warehousing and transportation decisions, which is an extension of the General Optimal Market Area (GOMA) Model developed by Erlenkotter. The distribution of inventory is investigated under different stock policies and the sensitivity of this distribution to various system parameters is analyzed.