Simulation-Based Approach for Multi-Echelon Inventory System Selection: Case of Distribution Systems

Abstract

Due to the current complexity of the supply chain, multi-echelon inventory management has become challenging while also being an interesting field of research as it allows efficient control of supply chain interdependencies. It became clear to many researchers that analytical models are no longer effective for addressing the multi-echelon inventory management problem. Simulation can be used to assess and quantify the impact of each inventory strategy on a supply chain performance. Our paper aims to provide a simulation-based approach to guide decision makers select and validate a multi-echelon distribution inventory system. The proposed approach is composed of four major steps that involve characterization of the current supply chain, conceptual modeling of the multi-echelon inventory system alternatives, and finally, simulation modeling using appropriate simulation software to compare and test different options. The approach was also tested and validated through an application to the case of the Moroccan pharmaceutical products supply chain in the public sector. The results of the simulation demonstrated that adopting an installation stock policy at all levels of the supply chain with an allocation of safety stocks in the most downstream stages is the best and most appropriate alternative for the pharmaceutical supply chain under study.