A Capacitated Multi‐echelon Inventory Placement Model under Lead Time Constraints

Abstract

We develop an inventory placement model in the context of general multi‐echelon supply chains where the delivery lead time promised to the customer must be respected. The delivery lead time is calculated based on the available stocks of the different input and output products in the different facilities and takes into account the purchasing lead times, the manufacturing lead times, and the transportation lead times. We assume finite manufacturing capacities and consider the interactions of manufacturing orders between time periods. Each facility manages the stocks of its input and output products. The size of customer orders and their arrival dates and due dates are assumed to be known as in many B2B situations. We perform extensive computational experiments to derive managerial insights. We also derive analytical insights regarding the manufacturing capacities to be installed and the impacts of the frequency of orders on the system cost.