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Multi Echelon Inventory Optimization Simulation
For best experience, view it on Laptop or Desktop
Definitions
COV (Coefficient of Variance): It's a measure of variation in demand and calculated as Standard Deviation / Average Demand. Higher the COV, higher is the variation in demand.
Fill Rate: It is a measure of customer service and calculated as Quantity Serviced / Actual Demand for DCs or Quantity Serviced / Quantity Ordered by DCs on RDC.
Inventory Turn-over: It is a measure of inventory level and measured as Annual Demand / Average Inventory.
ROP (Re-Order Point): Average Demand x Lead Time+Safety Stock
Ordering Policy: As and when stock falls below ROP, a lot equal to Minimum Order Quantity is ordered and received after Lead Time
Challenge
Balance Overall Inventory Turns and Fill Rates by varying the safety stocks at DC and RDC level as well as deciding the Minimum Order Quantity.
The biggest question in multi-echelon inventory system is how much safety stocks should be held at RDC and DC level? How does the situation change if the COV and Lead Times increase? What happens if we do not hold safety stock at RDC level or hold too much at RDC level and too less at DC level?
It's a simulation for experiential learning. There are no straight forward answers. The more variation and combinations you try and , then reflect on the outcomes, the more you will learn about the multi-echelon inventory dynamics.
Assumptions:
1. Sales lost at DC level due to stock shortage is lost forever i.e no back-orders allowed at DC level. However, shortage at RDC is taken as back-order and fulfilled in the subsequent cycles.
2. In case shortage of stocks at RDC against the orders from DCs, the RDC stock is allocated proportionately.
Your Decisions:
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Demand COV for both DCs,
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Safety Stock Levels, Lead Times. Minimum Order Quantity for DCs as well as RDC
Please summarize your learning in the comment box below
If you can't see the simulation below, then use the LINK here
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