Analysis of uncoordinated versus coordinated inventory control

Abstract: This master thesis has been completed at the Faculty of Engineering, Production Management in collaboration with the company Duni Group. The overall objective has been to provide guidance to Duni and analyze how they should control their inventory at each node in their new supply chain set up. The purpose was to determine appropriate reorder points for each location in Duni’s new supply chain setups using appropriate uncoordinated and coordinated inventory control methods. Furthermore, Duni seek guidance on how the inventory control would be affected by changing location of their central warehouse or implementing a consolidation point. The master thesis used a problem-solving research approach, which was divided into two phases. The purpose with phase 1 was to thoroughly understand Duni and create the future relevant scenarios. Phase 2 focused on solving the identified problem, which was conducted according to a six-step generic approach for operation research projects. Two mathematical models were needed - an analytical model and a simulation model. The analytical model was chosen by performing a literature review of existing models and discussions with the supervisor at the Faculty of Engineering. The simulation model was provided by the Faculty of Engineering. The result showed that the most appropriate inventory method to determine reorder points for Duni was coordinated inventory control. This since that method best fulfilled the objective to meet end customer service requirements with as little inventory as possible. However, the benefits with reducing inventory levels and hence tied up capital could not be explicitly determined due to the fact that none of the chosen models actually meet target fill rate for all items. Regarding the scenario of changed location of the CWH, the result showed that stock should be reallocated when lead times change. However, no significant reduction in inventory levels could be determined. Regarding the scenario with a consolidation point, the result seemed to indicate that if the batch size is very small compared to the batch sizes Duni uses today, the model will obtain better fill rates while still maintaining the same inventory levels. As the models seemed to have problems in fulfilling the target fill rate, further research could be to investigate if there exist other distributions, for instance gamma distribution, that would be more suitable to apply when the demand has such high coefficient of variation of demand as seen in this thesis project.