Chapter 6.9, Problem 22P

Summary Introduction

Interpretation:Elaborate on the working and benefits (or otherwise) of inventory pooling in the overall system of multiechelon inventory with focus on highest /least benefits by combining the two.

Concept Introduction:A system of inventory having more than one level of warehouses to the retail store is called a multiechelon inventory system e.g. a number of regional warehouses supply to local warehouses which supply to retail stores is a three eichelon system.

One of the methods of reducing/eliminating risks due to uncertainty of consumer/retail demand is to combine (pool) the demands of a number of retail stores. This method is called inventory pooling (aka risk pooling).

Inventory pooling and multiechelon inventory systems can work in tandem but may maximize or minimize benefits as per specific situations.