Order Advancement in a Multi-Item Two-Echelon System: Theory and Case study

Motivated by a case at a large retail chain in the Netherlands, we study short-term order advancement in a multi-item, two-echelon system consisting of a distribution center (DC) and many stores. Application of traditional inventory replenishment rules may lead to a strongly fluctuating workload for order picking, and thus capacity problems, at the DC. By advancing replenishments, we can balance the workload at the DC without negative impact on the service levels towards the final customer. We develop a performance evaluation method and an optimization heuristic suitable for large problem instances. Application to case data from the retail chain shows a reduction of 50% in the capacity shortage at the DC without causing major issues at store level. Sensitivity analysis shows that the capacity shortage could be reduced by up to 70% if backroom inventory is increased slightly.