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Optimising installation (R,Q) policies in distribution networks with stochastic lead times: a comparative analysis of guaranteed- and stochastic service models

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  • Niels De Smet
  • El-Houssaine Aghezzaf
  • Bram Desmet

Abstract

This paper studies two modelling approaches to the multi-echelon inventory optimisation problem in a distribution network with stochastic demands and lead times. It compares the performance of a novel guaranteed-service model (GSM), using an installation (R, Q) inventory control policy, with a stochastic service model (SSM) considering ordering, holding and flexibility costs. From both cycle service level and fill rate perspectives, our numerical analysis of the 1-warehouse 2-retailer network shows that cost difference between both models is driven by the internal service level at the warehouse. The GSM outperforms the SSM for over 80% of the simulated instances and realises an average total cost improvement of approximately 10%. This analysis goes against earlier results that showed a relatively low-cost difference between the two approaches, and demonstrates that it is worthwhile to evaluate competing models for multi-echelon inventory optimisation in real-world supply chains with batch ordering and variable lead times.

Suggested Citation

  • Niels De Smet & El-Houssaine Aghezzaf & Bram Desmet, 2019. "Optimising installation (R,Q) policies in distribution networks with stochastic lead times: a comparative analysis of guaranteed- and stochastic service models," International Journal of Production Research, Taylor & Francis Journals, vol. 57(13), pages 4148-4165, July.
    • Handle: RePEc:taf:tprsxx:v:57:y:2019:i:13:p:4148-4165
    DOI: 10.1080/00207543.2018.1518606
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    Cited by:

    1. Barros, Júlio & Cortez, Paulo & Carvalho, M. Sameiro, 2021. "A systematic literature review about dimensioning safety stock under uncertainties and risks in the procurement process," Operations Research Perspectives, Elsevier, vol. 8(C).
    2. Guanqun Ni, 2023. "An improved online replenishment policy and its competitive ratio analysis for a purchase-to-order seller," Journal of Combinatorial Optimization, Springer, vol. 46(2), pages 1-14, September.

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