Information Sharing

and

Echelon Inventory Management

for

Supply Chain Excellence

B. Ebenezer1 Vinay V.Panicker2 R.Sridharan3

1Graduate Student, 2Assistant Professor, 3Professor,

Department of Mechanical Engineering

National Institute of Technology Calicut
 Supply Chain

All stages that are involved directly or indirectly in fulfilling a

customer request forms a supply chain.

 Information Sharing

Performance of a supply chain is influenced by many factors.

Information sharing has been cited as one of major means of

improving supply chain performance. It allows companies to

better coordinate their activities with their supply chain

partners and generate improved performance. Baihaqi.(2008).

 Literature Review

S.No Author Year Content

1 Bourland et al. 1996 reduction of inventory cost when the
downstream member shares its
demand information
2 Cachon and 2000 benefits of sharing real time
Fisher information of demand and
inventory level
3 Zhao et al. 2002 simulated and examined the
forecasting and inventory
replenishment decisions
4 Vieira et al. 2004 development of simulation model for
a supply chain
5 Yao et al. 2007 benefits of following Vendor
Managed Inventory
6 Yu et al. 2010 simulated and analysed the effect of
four different information scenarios
on supply chain
 Problem Definition
A supply chain consisting of three retailers, one distributor
and a manufacturer has been considered. Each stage meets the
demand raised by its downstream buyer from its on hand
inventory. The inventory level is reviewed and order is placed
to its upstream supplier based on the inventory policy it
follows. Back order is considered only in the retailer level.
Retailers customer

Manufacturer Distributor
 Data Assumptions
 Customer inter arrival time
 exponentially distributed with mean 0.1 month

 Quantity of customer demand (D)

1 with probability 0.1666
 D= 2 with probability 0.3333
3 with probability 0.3333
4 with probability 0.1666

 Lead time for order arrival

 23 days (0.75 month)
 Inventory Policy
Periodic review - Order up to level policy
Each stage of the supply chain reviews its inventory
level at the starting of every month and places order to
its upstream supplier as follows:

OQ= S-IL if IL < s

0 if IL ≥ s

where OQ – Order Quantity

S - Maximum inventory level for the stage
s - Minimum inventory level for the stage
IL - Inventory level at the stage
Inventory Policy Parameters

Minimum inventory level

s= L * Davg + safety stock

Maximum inventory level

S = (r+L) * Davg + safety stock
Safety stock
= z * Dstd * sqrt (r+L)
Where r – review period, L – lead time,
z- safety stock factor
Davg ,Dstd – Average, standard deviation of demand
ARENA Model Developed
ARENA Model Developed
 Conventional Model
Distributor Retailers
 Conventional Model
Distributor Retailers

customer
 Conventional Model
Distributor Retailers

customer
 Conventional Model
Distributor Retailers

customer
 Conventional Model
Distributor Retailers

customer
 Conventional Model
Distributor Retailers

customer
 Conventional Model
Distributor Retailers

customer

Review period
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ

s= L * ROQavg + safety stock

S = (r+L) * ROQavg + safety stock
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
DOQ
 Conventional Model
Distributor Retailers

customer

Review period

ROQ
DOQ

Order quantity
quantity
Order

quantity
Order

Time
Bullwhip Effect Time Time
 Demand Information Sharing
Distributor Retailers

customer

End customer demand information

s= L * Davg + safety stock

S = (r+L) * Davg + safety stock
Inventory Information Sharing
Distributor Retailers

Echelon inventory
management
Echelon Inventory Management System

Retailer 1

Manufacturer Distributor Retailer 2

Retailer 3
Echelon Inventory Management System

Retailer 1

Manufacturer Distributor Retailer 2

Retailer 3
Echelon Inventory Management System

Retailer 1

Manufacturer Distributor Retailer 2

Retailer 3

se= Le * Davg + safety stock

Se = (r+Le) * Davg + safety stock
Where Le is the echelon lead time
Echelon Inventory Management System

Retailer 1

Manufacturer Distributor Retailer 2

Retailer 3

se= Le * Davg + safety stock

Se = (r+Le) * Davg + safety stock
Where Le is the echelon lead time
Echelon Inventory Management System

Retailer 1

Manufacturer Distributor Retailer 2

Retailer 3

Scenarios se= Le * Davg + safety stock

Inventory alone Se = (r+Le) * Davg + safety stock
Inventory and Demand Where Le is the echelon lead time
 Performance Indices
 Fill rate
 The fraction of customer demand that is
met routinely. i.e., without backorder or
lost sales
 Demand met / Demand arised

 Average total cost of the supply chain

 Sum of cost at each stage
 Cost at each stage = Avg holding cost +
avg shortage cost* + avg order cost
*shortage cost is considered only in Retailer level
 Performance Indices
Bullwhip Effect
The increase in demand variability as we
travel up the supply chain.
Bullwhip effect is measured by the variance in
the order quantity placed by each stage
Impact of Information Sharing
 Impact on Fill Rate
Fill Rate
97
96
95
Fill Rate

94
93
92
91
90
NIS DIS IIS DIIS
Retailer 1 94.65 92.79 96.32 96.2800
Retailer 2 94.71 92.25 95.95 95.91
Retailer 3 94.69 92.28 96.37 96.4000

Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
Impact on Total Cost of Supply Chain
Avg total cost vs information shared
700

600
Avg total cost of supply chain

500

400

300
Avg total cost

200

100

NIS, 94.68% DIS, 92.44% IIS, 96.21% DIIS, 96.20%

Information shared, fill rate

Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
 Impact on Inventory Levels
Avg holding cost
300

250

200
Avg holding cost

Retailer 1
150
Retailer 2
Retailer 3
100 Distributor
Manufacturer

50

NIS DIS IIS DIIS

Information sharing scenario
Notations used
NIS- No information sharing DIS- Demand information sharing
IIS - Inventory information sharing DIIS- Demand and Inventory information sharing
Impact on Bullwhip Effect
No information shared

Standard
deviation Average
COQ 14.711 75.18
ROQ 18.56 117.97
DOQ 34.82 156.92
MOQ 56.43 238.55

Graphs for other scenarios

 Impact on Bullwhip Effect

Demand and
Demand Inventory Inventory
No information Information Information information
Standard Standard Standard Standard
deviation Average deviation Average deviation Average deviation Average
Customer
order 14.711 75.18 14.711 75.18 14.711 75.18 14.711 75.18
Retailer
Order 18.56 117.97 23.83 118.58 17.56 109.81 17.37 109.67
Distributor
Order 34.82 156.92 28.5 133.67 26.9 152.84 30.55 118.19
Manufacturer
Order 56.43 238.55 28.83 138.42 29.44 194.10 33.35 124.34
 Scope for Future Work

Further experimentation can be carried out

for different inventory policies and different
values of the parameters.
 Conclusion

It is evident from the results obtained that

the supply chain can perform better when
information is shared between the stages.

Echelon inventory management technique

performs better when both demand and
inventory information are shared to the
upstream stages.
 References

Bourland, K. E., Powell, S. G., and Pyke, D. F. (1996).

Exploiting timely demand information to reduce
inventories. European Journal of Operational Research,
92, 239–243.
Cachon, G. P., and Fisher, M. (2000). Supply chain
inventory management and the value of shared
information. Management Science, 46, 1032–1048.
Chen, F., Drezner, Z., Ryan, J. K., & Simchi-Levi, D.
(2000a). Quantifying the bullwhip effect in a supply
chain: The impact of forecasting, lead times, and
information. Management Science, 46, 436–443.
Thonemann, U. W. (2002). Improving supply-chain
performance by sharing advancedemand information.
European Journal of Operational Research, 142, 81–107.
 References
Yao, Y. Evers, P.T. Dresner, M.E. Supply chain integration
in vendor-managed inventory. Decision Support Systems,
43, 663-674.
Yu, M.M. Ting, S. Chen, (2010), M. Evaluating the cross-
efficiency of information sharing in supply chains. Expert
Systems with Applications, 37, 2891-2897.
Zhao, X., Xie, J., and Leung, J. (2002). The impact of
forecasting model selection on the value of information
sharing in a supply chain. European Journal of Operational
Research, 142, 321–344.
THANK YOU
Impact on Bullwhip Effect
Demand information shared

Standard
deviation Average
COQ 14.711 75.18
ROQ 23.83 118.58
DOQ 28.5 133.67
MOQ 28.83 138.42
Impact on Bullwhip Effect
Inventory information shared

Standard
deviation Average
COQ 14.711 75.18
ROQ 17.56 109.81
DOQ 26.9 152.84
MOQ 29.44 194.10
Impact on Bullwhip Effect
Both demand and inventory information shared

Standard
deviation Average
COQ 14.711 75.18
ROQ 17.37 109.67
DOQ 30.55 118.19
MOQ 33.35 124.34

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