Parameters Affecting the Efficacy and Relative Location of a Distribution Center in a Supply Chain with Fixed Replen-ishment Intervals

This study addresses the efficacy and placement of a distribution center in a supply chain consisting of a single supplier and multiple retailers. The DC and retailers follow a fixed interval, order-up-to replenishment policy for a single product. The retailers experience independent, identically-distributed demand and unsatisfied demand at the DC and retailers is backlogged. Lead times for the DC and retailers are constant. With the goal in mind of minimizing total system safety stock, six fundamental questions are addressed. For example, how many retailers must be present in the network for a centralized system to be superior to a decentralized system? For another, should the DC be closer to the supplier or the retailers? One or more equations are presented to help answer each question. This study adds to the research on supply chain design and inventory pooling by showing the impact of system parameters on safety stock requirements.