Distribution supply chains risk pooling and inventory impact

3 Distribution Supply Chains Risk Pooling and Inventory Impact 

Consider a distribution supply chain consisting of a set of n downstream retailers linked to a common source warehouse. There is a common inventory pool at the warehouse shared by all downstream locations. Suppose the supplier lead time is Z. If every retailer faced a demand with a mean of /x and a variance of cr, then the common pool of inventory at the warehouse would be nLjx) + Z J Ln), where the Z refers to the standard normal value whose cumulative probability is the service level offered to retailers, and Z is the supply lead time. 

If each individual retailer carried its own inventory, it would maintain an inventory level of Lfi + (Zct-JL). Thus the total system inventory would be n LfX, + (Zct-JL)). The pooled inventory includes a safety stock of Z(Jy/nL while the individual locations would generate a safety stock of Z(7n-jL. Thus, the role of the warehouse in a distribution supply chain is to decrease the buffer capacity by a factor of Jn. This - fn effect is a rule of thumb to estimate the benefit of consolidating inventory in a supply chain. 

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See also in sourсe #XX -- [ ]

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