Article ID: | iaor20105531 |
Volume: | 13 |
Issue: | 2 |
Start Page Number: | 99 |
End Page Number: | 120 |
Publication Date: | Apr 2010 |
Journal: | International Journal of Logistics Research and Applications |
Authors: | Klosterhalfen S, Minner S |
Keywords: | distribution, simulation: applications |
Contributions to multi-echelon safety stock optimisation can broadly be divided into models following either a stochastic- or guaranteed-service approach. These approaches form the basis of several commercial inventory optimisation software tools. To date, there is still a lack of a detailed comparison between the two approaches. This paper presents a cost comparison for two-stage distribution systems by means of a simulation study. The results indicate that the cost difference between the two approaches is quite small amounting to 4% at most. We observe that in most cases, the resulting (lower) internal warehouse service level is a good indicator for the superiority of an approach. The guaranteed-service approach shows a better performance for moderate flexibility costs, large warehouse processing times and high retailer service levels.