Purpose of this paper Achieving effective and efficient inventory control in supply chain management is a task that requires insights into the workings of multi-stage inventory systems with uncertainty about future demand and supply. In this paper we analyze and compare two basic principles for coordinated inventory control in a multi-stage supply-chain setting. Design/methodology/approach The objective is to find the overall minimum inventory investment and the associated stock allocations in order to fulfil a given service level for end customer demand. We show the effects of using both optimal and heuristic control methods for coordination. The numerical results obtained by simulation are compared with the solutions found when inventories in the supply chain are controlled independently of each other. Findings Coordinated inventory control can offer a significant potential for cost reduction in a supply chain. However, the resulting inventory allocations are not always obvious without thorough analyses of the coordination effects. Research limitations/implications Some of the conclusions are formed on the basis of numerical examples and future research could involve investigation of a wider set of cases. The set of inventory control policies investigated here is also limited and could be extended in future research. Practical implications Guidelines to supply chain managers for allocating safety stocks in supply chains. What is original/value of paper The comparison of effects of different approaches for allocating inventory in supply chains.
Coordination; Distribution system; Guaranteed service model; Multi-echelon system; Stochastic demand