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Inventory Management and Risk Pooling - Managing inventory in the supply chain

6 important questions on Inventory Management and Risk Pooling - Managing inventory in the supply chain

What is a serial supply chain?

A serial supply chain is one in which there are a series of stages, each of which supplies a single downstream stage, until the final stage, which meets end customer demand.

What are the assumptions with an echelon inventory policy? Name two.

1. Inventory decisions are made by a single decision maker whose objective is to minimize systemwide cost.
2. The decision maker has access to inventory information at each of the retailers and at the warehouse

What is the echelon inventory at any stage or level of the system?

The echelon inventory at any stage or level of the system is equal to the inventory on hand at the echelon, plus all downstream inventory. Downstream means closer to the customer.

What are the three typical stages in a serial supply chain?

1. Supplier -> Echelon inventory position at distributor
2. Distributor -> Echelon inventory at distributor
3. Retailer

What is the echelon inventory position at the distributor?

The echelon inventory position at the distributor is the echelon inventory at the distributor's warehouse, plus those items ordered by the distributor that have not yet arrived minus all items that are backordered.

How should the reorder point associated with the warehouse echelon inventory position be calculated?

Where:
Le = echelon lead time, defined as the lead time between the retailers and the warehouse plus the lead time between the warehouses and its supplier
AVG = average demand across all retailers (the average of the aggregate demand)
STD = standard deviation of (aggregate) demand across all retailers