A robustness study of a multi-echelon inventory model via simulation

Abstract

This paper examines the robustness of a standard model of multi-echelon inventory systems, specifically the models discussed in Axsäter (Oper. Res. 48(5) (2000) 686). A simulation model was developed to explore the model's ability to predict system performance for a two-echelon one-warehouse, multiple retailer system using ( R, Q) inventory policies under conditions that violate the model's fundamental modeling assumptions. In particular, the impact of non-stationary demand on this stationary demand inventory model was examined. The model performs well at the low demand and large retailer order batch size situations, but our testing of the model indicated that care must be taken when applying this model to situations that violate its fundamental assumption. These results should help practitioners to better understand the assumptions of these models and to determine when or when not to apply these models in practice.