Subject: Inventory and Logistic Operations

Submitted To: Dr. Ali Imtiaz

Submitted By: Muhammad Umer
Class: MS-SCM (2A)

BAHRIA UNIVERSITY
Multi Echelon Inventory System

A multi-echelon inventory system is one that relies heavily on layers of suppliers

distributed across multiple distribution centers and that is based on outsourced
manufacturing. In such a system, new inventory shipments are first stored at a central
or regional distribution center (RDC). These central facilities are the internal suppliers to
the customer-facing outlets, also called forward distribution centers (DCs).

The objective of multi-echelon inventory management is to deliver the desired end

customer service levels at minimum network inventory, with the inventory divided
among the various echelons. With the primary focus on inventory, transportation and
warehouse operations expenses also are taken care of, because their cost factors are
part of the overall optimization.

Companies using Multi Echelon Inventory System

 Nike’s distribution network consists of 7 RDCs and more than 300,000 DCs; and
these DCs serve end customers. Here, the DC and RDC both are under the
control of a single enterprise – Nike, Inc.
 Castrol used inventory optimization to reduce finished goods inventory by an
average of 35 percent in two years while increasing service levels (defined as
line fill rates) by 9 percent
 Electro-components, a United Kingdom based world’s largest distributor of
electronics and maintenance products, increased profits by £36 million by using
inventory optimization to achieve higher service level while reducing inventory