Abstract
The purpose of this thesis is to investigate the inventory integration problem in the multi-echelon inventory system. We expand the two-echelon inventory system to the three-echelon inventory system to achieve the global optimization. We will verify the application range of the METRIC model and decide the reasonable range of parameter setting by running the numerical results, in order to reduce the difference between the METRIC approximation and the exact solution. We consider a two-echelon inventory system consists of one warehouse and multiple retailers, which follows the one-for-one inventory policy, and formulate the METRIC model to find the expected number of backorders by minimizing the backorder cost. We then develop the exact solution method corresponds to the METRIC approximation solution method. Furthermore, we consider a three-echelon inventory system consists of one supplier, multiple warehouses and multiple retailers, which has the same assumptions as described in the two-echelon inventory system. Again, we develop the exact solution method corresponds to the METRIC approximation solution method. In this study, we found that the METRIC model is appropriate when the demand is low, which can be applied such as in the Air Force and the military industry. By the accurate parameter setting, we can show that the solution found by the METRIC model is close to the exact solution.