A Fill-Rate Service Level Model for Integrated Network Design and Inventory Allocation Problem
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Today’s global economy rely heavily on transportation and warehousing to deliver goods. Outsourcing has also made the distribution networks complex with several layers of national (import) distribution centers (NDCs) and regional distribution centers (RDCs) between suppliers and retailers. More distribution nodes in the supply chain also means more inventory stockpiles. We present an integrated facility location and inventory allocation problem for designing a distribution network with multiple NDCs and retailers. The key decisions are where to locate the regional distribution centers and how much inventory to hold at the different nodes of the distribution network such that the total network cost is minimized. A Type-II (fill-rate) service level measure is used in this analysis for modeling the safety stock inventory and the inventory cost analysis is based on the continuous review batch ordering policy. Our analysis shows that the type of service measure used affects the network design.