Inventory positioning for a multi-echelon distribution network

Abstract

This thesis presents a framework for deciding which products to centralize in a regional distribution center and which products to store decentralized close to the customer sites, for each facility in a multi-echelon distribution network. Our research specifically focuses on developing an optimization model to determine the inventory positioning strategy that minimizes total costs. The model considers both inbound and outbound transportation costs along with inventory holding costs at all facilities in the network. The total cost and responsiveness of the optimal solution are compared with the baseline network, in which inventory is completely decentralized. Our analysis is performed using several products that have diverse characteristics, in terms of demand patterns, lead-times, product costs, service-level requirements, transportation modes, and supplier locations. A sensitivity analysis is performed to study how a variance in these parameters affects the optimal solution. The research suggests that for high volume commodity items the benefits of centralization are highly dependent upon the degree of lane consolidation. However, for low volume specialty items, centralization can provide immediate benefits with no change to the existing transportation network.