Management of multi-echelon inventory systems: Methodological proposal for decision support using the system dynamics approach and multicriteria analysis

Intellectual Capital, Management Theory March 5, 1996 , by Rudolf Rosas Flunger

This paper presents a methodology for analyzing management problems using both the Systems Dynamics Approach and the Multicriteria Decision Aid Methodology (MMCAD). This methodology, called Interactive Decision Support Methodology (MIAD), is demonstrated through the study of multi-echelon inventory system. The MIAD is composed of three phases: Problem definition, project planning and project execution. This methodology intends to use the System Dynamics Approach as a tool to: facilitate the process of problem emergence and definition, identify possible alternatives, evaluate the consequences of implementation, make explicit the consequences of the dynamic behavior of the system. The MMCAD is used as a tool to find a coherent criteria family and a preference system over the alternatives. The example problem is to find the best management policy for an inventory system that could be implemented as a one or two-echelon system. The alternatives are the different permutations of the two most used inventory policies: Periodic Review and Reorder point. The result is that the reorder point policy with a single echelon inventory systems is the best. The MIAD proved to be very useful to show the relevant characteristics of the systems behavior by using dynamic simulation and to achieve a concise prescription by using the Multicriteria Decision Aid Methodology (MMCAD).