This paper studies coordination strategies for a two-echelon manufacturing and distribution system consisting of a manufacturing centre and n distribution centres. Models are developed and analysed for two alternative control systems: one employs coordination among the manufacturing centre and n distribution centres, the other does not. Three coordination strategies are studied: (1) coordinating production and distribution decisions at every production opportunity: (2) coordinating and deferring system-order allocation decisions; and (3) trans-shipment among distribution centres. Our analysis yields the following insights into the value of coordination. First, coordination can have a very significant impact on distribution centre safety stock needed to meet the required service level. Second, the three coordination strategies studied contribute very differently in reducing distribution centre safety stock. Third, the maximum reduction in a distribution centre's safety stock level resulting from coordination is achieved when the variance of end-of-cycle on-hand inventory is identical for all distribution centres.
