A fractal echelon approach for inventory management in supply chain networks

A major issue in supply chain inventory management is the coordination of inventory policies adopted by different members in a supply chain including suppliers, manufacturers, distributors, etc. This paper presents a fractal-based approach for inventory management in order to minimize inventory costs and smooth material flows between supply chain members while responsively meeting customer demand. Within this framework, each member in the supply chain is defined as a self-similar structure, referred to as a fractal. A fractal-based echelon does not indicate a functional level or composition of supply chain members but indicates a group of multi- or hetero-functional fractals. The basic fractal unit (BFU) consists of five functional modules including an observer, an analyzer, a resolver, an organizer, and a reporter. The application of the fractal concept into inventory management makes it easy to intuitively understand and manage supply chain inventories because similar functional modules can be iteratively applied to an inventory management system. More specifically, we apply the fractal concept to a vendor managed inventory (VMI) model, referred to as fractal-based VMI (fVMI), where a vendor assumes responsibility for maintaining inventory levels and determining order quantities for his buyers. In this paper, we develop mathematical models for the analyzer and resolver to effectively manage supply chain inventories. For validating the proposed approach, a comprehensive simulation model, representing two VMI initiatives including traditional VMI and fVMI, is constructed and used for comparative analyses of case studies.