MILP reformulation and extension of multi-echelon inventory optimization model based on the guaranteed service approach

Abstract

This work presents a Multi-Echelon Inventory Optimization (MEIO) model based on the Guaranteed Service Model (GSM) approach, aimed at determining the appropriate safety stock (SS) levels in a multi-echelon supply chain at minimum cost, while satisfying customer service level targets. This paper incorporates a linear reformulation of the safety stock calculation, significantly improving the solution performance. Additionally, this model allows for the possibility of considering demand modeled by either Normal or Poisson distribution, depending on its scale. This modification is integrated into the formulation as an extension of the GSM framework, broadening its applicability in low-demand scenarios. The suitability of using the Poisson distribution is evaluated through an illustrative example. Moreover, the performance of the proposed approach is assessed and compared with solutions from the previous work.