Effects of Inventory Policies on Supply Chain Design

Abstract

This thesis is motivated by an industrial problem faced by Bombardier Inc. in designing a two-echelon supply chain. The upper echelon is a plant that operates under batch ordering inventory policy. The lower echelon is a set of service centers which operate under base stock inventory policy. The problem is to decide which service centers to open and how to assign customers to open service centers based on their preference. The stock level at each open service center is decided to meet a specified mean target response time requirement. The objective is to minimize the total cost including the location-allocation cost, the ordering cost at the plant, the holding cost, and the backorder cost at both the plant and open service centers.\\ The inventory-location problem is formulated as a mixed-integer programing problem with stochastic variables and mean target response time constraint. A cutting-plane algorithm is proposed to solve the model. Numerical testing is performed on industry instances and instances from the literature to evaluate the effectiveness of the cutting-plane algorithm and to investigate the effects of different inventory replenishment policies.