Allocation decisions and emergency shipments in multi-echelon inventory control

Abstract: The control of inventories is a key issue for achieving efficient management of supply chains. This Licentiate Thesis is devoted to inventory control theory, a subdiscipline within the field of operations research and the management sciences. The objective of the research presented is: To develop mathematical models for efficient control of stochastic multi-echelon inventory distribution systems, with focus on demand pooling through decisions of allocation and use of emergency shipments. The thesis is based on three scientific papers, which are preceded by a summarizing introduction. The three papers all deal with continuous review systems where pooling effects are achieved, either by the postponement of allocation decisions or through sharing of emergency supplies. Paper I considers a system with N retailers (also known as dealers or local warehouses) facing customer demand, all being replenished by a central warehouse. The system is characterized by access to real-time point-of-sale data, and a time based dispatching and shipment consolidation policy at the warehouse. The focus is on how the warehouse should distribute its stock among the different retailers. The simple First Come-First Serve allocation rule is compared to more complex state-dependent methods of allocation. Paper II is motivated by collaboration with a global after market service provider with headquarters in Sweden. It analyses a system where multiple retailers receive emergency shipments, when needed, from a so-called support warehouse. The main objective is to develop a cost efficient method for coordinating system inventory that can be directly applied in practice, and to exemplify its use in a real world context. Paper III stems from the same research collaboration as Paper II. The focus now is on using information on orders in the replenishment pipeline when determining whether to request an emergency shipment or wait for regular replenishment. We introduce a new policy where the time until outstanding orders will arrive at the retailer determines whether an emergency shipment is requested. The main objective is to illustrate the value of using information on stock in the replenishment pipeline when designing inventory control methods, both from a theoretical and practical viewpoint.