Comparison of single-echelon vs. multi-echelon inventory systems using multi-objective stochastic modelling

Recent advancements in inventory management have identified need for investigating benefits of single‐echelon and multi‐echelon systems. Single‐echelon inventory control problems focus on determining the appropriate level of inventory for an individual unit within the supply chain network, while multi‐echelon inventory optimisation takes a holistic approach by focusing on the correct levels of inventory across the entire network. This paper presents a stochastic modelling approach for multi‐tier supply chains with multiple inventory items. The approach will be used to compare behaviour of single‐echelon vs. multi‐echelon inventory systems. A multi‐objective optimisation method is used to optimise model's behaviour with two conflicting objectives: minimising average inventory across the supply chain and maximising overall fill rate. The results show that single‐echelon systems result in higher inventory levels and lower fill rates, while multi‐echelon systems result in lower inventory levels while maintaining higher fill rates for the entire supply chain network. The methods are demonstrated on a sample network database.