Joint optimization of safety stock placement and supplier selection in a multi-layered distribution network

Abstract

This paper discusses the challenging problem of jointly optimizing safety stock placement and supplier selection in a multi-layered distribution network, under the guaranteed service model (GSM) approach and single-supplier strategy for the customers. The original GSM-based model is extended to include optimal echelon (R, Q) policies. We propose an approximation model, which determines the optimal configuration flow of orders, order quantities, reorder points, safety stock amounts, inbound and outbound service times at each node. A two-stage heuristic is developed for this complex model that optimizes the flow configuration and then determines the other variables. Current experimental results on a few test networks indicate a promising computational time performance.