A normal approximation model for safety stock optimization in a two-echelon distribution system

This paper presents an approximation model for the retailer replenishment lead-times in a two-echelon distribution system, and discusses its implementation for safety stock optimization in a one-warehouse and N-identical retailers system. The model assumes normality of demand and nominal lead times. It takes into account not only the averages of these parameters but also their variances. This approximation model is first tested on a two-echelon, one-warehouse and N-identical retailers system using discrete event simulation. It is then applied to optimize the safety stock in a two-echelon distribution system of a European market leader in the production and distribution of air conditioning equipment. Results of this implementation are analysed and discussed in detail.