Echelon Reorder Points, Installations Reorder Points, and the Value of Centralized Demand Information By; Fangruo Chen Presented by; Justin Johnson Dr. Edmonds
1. Echelon Reorder Points, Installations Reorder Points, and
the Value of Centralized Demand Information By; Fangruo Chen
Presented by; Justin Johnson Dr. Edmonds
2. Outline of Article
Introduction
Preliminaries
Echelon Reorder Points
Installation Reorder Points
Numerical Experimental Data
Class Discussion and Questions
3. Why bother understanding?
The value of information is a central issue in inventory
management.
Benefits of timely placement orders due to the availability of
echelon-stock information- Defined as inventory position of a
subsystem consisting of the stage itself and all downstream
stages.
Demand info and inventory are substitutes for one another.
Example- Advanced warnings from customers of their orders
reduces inventory. Leads to Better communication b/t customers
& suppliers as well as supply-chain members.
4. 1. Introduction Section
Each serial inventory system has N stages
Materials flow in from outside suppliers
Proceeds to stage N 1. and finally to stage 1(Customer Demand
arises.)
Inv. Transferred in Batches
Each stage replenishes a stage-specific inventory position
according to a stage-specific reorder point / order quantity
policy.
Based on numerical equations/ Lemmas and Theorems
These algorithms allow one to conduct an extensive
computational study to assess the value of centralized demand
information and to understand how this value depends on several key
system parameters, i.e., the number of stages, lead-times, batch
sizes, demand variability, and the desired level of customer
service.
5. 2 variations of reorder pt
2 policies are said to be identical if they result in the same
ordering procedure.
Echelon stock- inventory position of the subsystem consisting
of the stage itself and all downstream stages.
To or - Echelon reorder pt- order placed
Demand info at stage 1 real time basis and has centralized
demand info.
Installation Stock- (local) inventory position
To or - Installation reorder pt- order placed
Requires only local inventory information
6. 2. Preliminaries
Each serial inventory system has N stages. 1 from 2, 2 from 3
etc.
Each stage N orders from an outside supplier with unlimited
stock. (outside supplier is called stage N + 1.)
Each stage represents a stocking point in a production system,
distribution system, or hybrid one.
When stage 1 runs out of stock- demand is backlogged.
Holding costs are associated.
Idea; minimize the long-run avg. total cost in the sys.
7. Continued
Echelon stock must be continuously monitored and accessible to
information at stage 1 at a real time basis.
Replenishment Policy- when inventory falls to or below a
reorder point R the stage given must order a minimum integer
multiple of Q ( base quantity) to + inventory position above R
.
If the supplier does not have sufficient inventory on hand
shipment is sent and the rest of the order is backlogged.
(base qt. are assumed as fixed, reorder pts are only decision
variables throughout paper)
Various equations determine replenishment policy
All determine when and how much to order at every stage.
8. 3. Echelon Reorder Points
Efficient Algorithms are developed for determining optimal
echelon reorder points.
Echelon stock
Based on observation that in a steady state each stage is seen
as essentially the echelon inventory position at each stage is
equal to the inventory of a single stage.
Through satisfying these simple equations lead times, delays,
reorder points, long run/back order costs, inventories can all be
laid out for everyone involved in the supply chain & production
processes minimizing confusions and costs associated.
Communication through fun math/ discrete time models.
9. 4.Installation Reorder Points
Installation Stock
Inventory level of an item which signals the need for placement
of a replenishment order, taking into account the consumption of
the item during order lead time and the quantity required for the
safety stock.
Considered to be Computationally infeasible for some problem
instances, especially those with many stages involved.
Bounds presented on the optimal installation reorder
points.
These are used to search for an optimal solution based on
numerical data.
These solutions ultimately give us the installation reorder
points that have the lowest long run average costs.
Saves time, confusion, and most importantly money
10. 5.) Numerical Examples
This section reports an extensive computational study designed
to test the best optimal algorithm developed in the previous
section (installation reorder points) and assesses centralized
demand information.
In this study a pool of 1,536 examples, it was found that the
value of information tends to increase when the number of stages,
batches, and lead-times involved increases.
The value of information, and levels of customer service tend
to increase in value.
11. The math is so hard it confuses Excel
12. Class Discussion
Bases on the ZERO questions I received I am assuming you were
all already experts on the topic.