The coordinated local (R,S) policy for managing inventory in multi-stage distribution systems

A major challenge to supply chain managers is how to control inventories and costs along the supply chain while maximizing customer service performance. In the literature, although the optimal management of inventory along the supply chain has received considerable attention during the past decades, the attention has been mainly given to multi-echelon control policies. A prerequisite for applying these policies is full information transparency in the supply chain, which is hard to accomplish in practice because it may require major organizational changes. In the case that a decentralized control (local (R, S) policy) should be used at each location in multi-stage distribution systems, this paper presents the coordinating approach of determining the best policy which satisfies predetermined target customer service levels and minimizes the mean physical stock along the system.