Perspectives of inventory control models in the Physical Internet: A simulation study

Classical supply chain design relies on a hierarchical organization to store and distribute products over a given geographical area. Within this framework, a stock shortage affects the entire downstream section of the supply chain, regardless of the stocks kept in other locations. With the implementation of the Physical Internet (PI) approach, of which the aim is to integrate logistics networks into a universal, interconnected system, inventories can be divided among shared hubs that serve the market and allow for Source Substitution. This contribution measures the impact of such an organization on inventory levels and costs, with service level being set as a constraint. The analysis focuses on the resource levels (transportation and inventory) required by the current supply model and by the Physical Internet system to serve a market with a (Q, R) stock policy. Starting with two supply models and with the definition of cost models, as well as inventory policy, the work is based on computer simulation. The analysis tested three different categories of criteria to allow dynamic source selection when an order is placed: Source Substitution, Minimum Ratio and Minimum Sum. Source Substitution, one of the simplest criteria, was determined to be the most efficient and stable according to different scenarios. The main intent of this paper is to define the new research question related to inventory management in a Physical Internet Network and to provide a view of how the PI affects traditional inventory control policies. (C) 2014 Elsevier Ltd. All rights reserved.