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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. Achkar, Victoria G. & Brunaud, Braulio B. & Pérez, Héctor D. & Musa, Rami & Méndez, Carlos A. & Grossmann, Ignacio E., 2024. "Extensions to the guaranteed service model for industrial applications of multi-echelon inventory optimization," European Journal of Operational Research, Elsevier, vol. 313(1), pages 192-206.
    3. 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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