Analysis of a coordinated multi-echelon inventory control system

Abstract: Even though the coordinated inventory control is becoming more well-known, it is relative unused by companies, whose advantages of using it should be obvious. This master thesis illustrates the result of using coordinated inventory control compared to a currently used non-coordinated inventory control. There exist precise coordinated methods for control of a multi-echelon inventory system, but they are too computationally complex to use in practice. Approximations are needed to allow a coordinated inventory control in practice and not just in theory. The basic idea with the coordinated model evaluated in this master thesis is to introduce an induced backorder cost at the central warehouse allowing decompose of the multi-echelon inventory system to several single-echelon inventory systems. The inventory system which the model decomposes is a distribution system with one central warehouse and N different retailers. The coordinated model has earlier been used and tested in real case scenarios and other master thesis, but since then it has been developed to improve its performance. The study began by selecting a number of articles that represent the actual material flow within the studied inventory system. Then the reorder points of all the selected articles were calculated with the coordinated model. The calculated reorder points were then compared, by simulations in the simulation software Extend, with the current reorder points obtained from Syncron. The reorder points from Syncron are calculated without any coordinated inventory control. The results of the project have shown that by using a coordinated inventory control of the inventory system, the total inventory in the system is reduced significantly, with about 35%, while the service level most of the times is improved or at least maintained. Most of the inventory within the inventory system has shifted from the central warehouse out to the retailers.