Inventory replenishment planning in a distribution system with safety stock policy and minimum and maximum joint replenishment quantity constraints

Abstract : In this paper, we consider the inventory management of a two-echelon distribution system of Alibaba, where multiple products are jointly replenished with minimum and maximum replenishment quantity constraints. We propose a safety stock based inventory control policy for the system, where the ending inventory of each product at each stock in each period must not be lower than a required safety stock level in case real demand is equal to demand forecast. With such policy, the inventory replenishment decision problem of the system is formulated as a mixed-integer programing model. The effectiveness of the model and the policy is evaluated by numerical experiments on instances generated partially based on real data of Alibaba. The numerical results show that the safety stock policy leads to lower logistics costs and higher customer service levels compared with (s, S) policy currently used in Alibaba for most instances.