Stage one : determination of the stockmix
The determination of the number of products to be stocked in a DC is a difficult problem which requires a modelling of the lead time preferences of customers. It was left out of this study ; we simply used the present number (50 per DC). As the products have the same transportation characteristics, we focused our attention on the order frequency and order size distribution. We started therefore by determining the criteria on which the decision to stock a product should be based.
Firstly we note that the service objective are formulated in terms of number of orders. The service objective suggest that one should stock the products which are ordered most often. Examining the stocking decision more closely we find a paradoxical situation. Delivering orders via DCs is more expensive than delivering directly, so the service objectives are best met with shipping small orders via a DCs. This also reduces the workload for the cutting machines in the DCs. However the cost structure for regional transport, namely decreasing cost per kilogram as the order size increases, make it worthwhile to stock those 50 products that are ordered mostly in large quantities. Hence we tasted the following three index policies : stock those products with larges number of order (i) below the average order size (over all products), (ii) above and (iii) with any size.