Replenishment Policy in a Two-Echelon Supply Chain:An Analysis Using Discrete-Event Simulation

The present study identifies optimal inventory policies for two-echelon systems under the effects of supply disruptions and stochastic demand. Previous research has incorporated and addressed stochastic demand quite extensively but the study of supply disruptions is relatively new. Presently, supply disruptions are studied heuristically and through theoretical analysis to identify optimum inventory levels. The current study uses discrete event simulation to arrive at optimal policies under varied levels of supply disruptions and stochastic demand. It uses a designed experiment to vary disruption length and disruption frequency. We find that under conditions of supply disruption, a decentralised policy is more likely to yield lower costs than a centralised policy when disruption levels are high but a centralised policy is better otherwise.