Policies for multi-echelon supply: DRP systems with probabilistic time-varying demands
This paper develops rolling planning horizon policies to manage material flows in multi-echelon supply - distribution networks with relatively general stochastic demand processes and procurement, transportation, inventory and shortage cost structures. Initially, the problem is formulated as a stochastic program with recourse, and its deterministic equivalent program is approximated by a multi-echelon lot-sizing model based on "risk inflated effective demands." A DRP - decomposition of this approximate model, which can be used with planning time fences or allocation algorithms, is then introduced. The use of expediting actions is also discussed. Finally, through a set of simulation experiments, the solutions obtained with our planning policies are compared with the solutions given by a classical DRP approach using safety stocks. The results show that the approach proposed leads to significant improvements.
drp stochastic programming supply systems multi-echelon distribution non-stationary stochastic demand