Development and Analysis of a Multi-Echelon Inventory Optimization Tool at Ethicon, a Johnson & Johnson Company

Details

Supervisors

Agrell, Per Joakim

Faculty

Louvain School of Management

Degree label

Master [120] en Ingénieur de gestion

Abstract

The foundation of this thesis is an internship project at Ethicon, a Johnson & Johnson company. The goal of the project was to create a multi-echelon inventory optimization tool for Ethicon and based on that tool, to analyze the underlying dynamics of multi-echelon inventory optimization and to weight the benefits that it might generate. Note that the safety stock targets computed by the multi-echelon inventory optimization tool cover for both demand and supply variability. I selected one specific product family from Ethicon to test the multi-echelon inventory optimization tool. For that family, the savings in safety stock volume reached 12.9% in total. I performed a simulation to evaluate the customer service level attached to the multi-echelon solution. The results are positive: the customer service level does not decrease when implementing the multi-echelon solution. The savings attached to the multi-echelon solution are different for each product. For some products, the multi-echelon solution is barely better than the single-echelon solution, while for others, the multi-echelon solution suggests safety stock targets that are 30% lower than those suggested by the single-echelon solution. Three effects influence the strength of the multi-echelon solution: the demand-location risk pooling effect, the demand-time risk pooling effect, and the lead time risk pooling effect. Those depend on the network of each product.