Exploring Rush Order Policies in a Multi-Echelon Inventory System

Sammanfattning

Title: Exploring Rush Order Policies in a Multi-Echelon Inventory System Authors: Stina Nilsson & Lina Solbu. Supervisors: Johan Marklund, LTH. Philip Mårtensson & Johan Lidvall, Volvo Group. Background: The Case Company is currently transitioning their inventory control from a single-echelon to a multi-echelon optimization approach. As no formal rush order policy currently exists, it is of great interest to explore the impact on rush orders in this transition and investigate the potential value of introducing rush order policies. Purpose: The purpose of this thesis is to analyze the rush order processes, particularly with regards to how decisions are made. Based on the current situation, the objective is to formulate possible rush order policies that could be implemented in Volvo Groups’ distribution system. The cost and emission impact of implementing these policies at the dealers will be analyzed, and the effect on the number of rush orders will be evaluated through simulation, by comparing the current system to a proposed MEIO controlled system. Methodology: The methodology in this thesis consists of two parts. The first part was an exploratory research study, adopting methods proposed by Höst et al. (2006). This included an extensive literature study and conducting interviews with selected employees at the Case Company. A simulation study framework by Hillier and Lieberman (2021) was employed for the second part of this thesis, to guideline the numerical study utilizing simulation. Conclusion: The current order processes lack traceability on the arrival of incoming stock orders. Access to accurate pipeline information have potential to reduce the number of unnecessary rush orders. Through simulation, a pipeline policy was found to reduce the expected number of rush orders by 23.5% in a single-echelon system and by 19.4% in a multi-echelon system.