Subject: Inventory and Logistic Operations

Submitted To: Dr.Ali Imtiaz

Submitted By: Zia ur Rehman
Class: MS-SCM

BAHRIA UNIVERSITY
Multi Echelon Model:-
Inventory management remains a key challenge in supply chain management. Many companies
recognize the benefits of a good inventory management system. An effective inventory
management helps reaching a high customer service level while dealing with demand variability.

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). Multi-echelon inventory optimization represents the state of the art approach to optimize
inventory across the end to end supply chain. Modeling multiple stages allows other types of
inventory, including cycle stock and prebuild along with safety stock due to time phased
demands, to be accurately predicted. As part of inventory optimization, supplier performance,
customer service and internal asset metrics should be continuously monitored to enable
continuous improvement.

Companies using Multi Echelon Inventory System:-

i. 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.

ii. 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.
iii. Electrocomponents 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 levels while reducing inventory.