A guide to MEIO (Multi Echelon Inventory Optimisation)

For companies that exist in today’s omnichannel and multisite environment, achieving stock availability has never been more difficult… and costly! With more channels, more demanding customers and an increasing number of products to manage, many organisations can quickly lose sight of their inventory position. Faced with expensive excess stock levels and crippling shortages, what can businesses do to enhance visibility across their integrated supply chain?

Excess inventory is one of the biggest challenges that businesses face when planning across multiple locations. The problem can be exacerbated by the “bullwhip effect”, a phenomenon where safety stock is built up at each location, and where a relatively small change in demand leads to a disproportionate increase in stock at the beginning of the chain. Furthermore, ensuring that the right stock is available in the right locations is another major issue that must be managed carefully. Failure to do so could result in revenue loss, disappointed customers and unnecessary inventory costs.

To navigate these challenges, companies must adopt the most suitable inventory planning approach. But which strategy is best for your business? This guide explores Multi-Echelon Inventory Optimisation (MEIO), its core principles and how it can help you achieve supply chain efficiency through better visibility and planning.

What is Multi-Echelon Inventory Optimisation (MEIO)?

MEIO is an advanced inventory management technique that optimises stock levels across multiple locations within a supply chain. Unlike traditional inventory planning, which focuses on individual locations (Single Echelon), MEIO considers the entire network, ensuring that stock is available in the right place at the right time.

In essence, MEIO aims to optimise inventory across the entire supply chain network, rather than focusing on individual locations. Its main objectives are:

• Reduce excess stock: Avoid overstocking across multiple locations.
• Minimise stock-outs: Ensure product availability wherever there is demand.
• Improve visibility: Improve supply chain transparency through real-time data.
• Optimise costs: Reduce warehousing and logistics costs while maintaining service levels.

Differences between MEIO (Multi Echelon Inventory Optimisation) and IO (Inventory Optimisation)

Unlike traditional Inventory Optimisation (IO), which looks at each location separately, Multi-Echelon Inventory Optimisation (MEIO) takes a broader view of the entire supply chain. The main differences are:

Swipe horizontally on mobile to view the full table.

In short, MEIO offers a more connected, efficient and resilient approach to inventory management than traditional IO, making it ideal for complex, multi-location supply chains.

What are the benefits of MEIO

Using Multi-Echelon Inventory Optimisation (MEIO) can bring major benefits to your entire supply chain. By smartly managing inventory across different locations and channels, businesses can cut down on excess stock, reduce holding costs and make sure products are available when and where they’re needed.

Improve supply chain efficiency

By balancing stock across multiple locations, companies can streamline operations and reduce waste.

Improved demand forecasting

With a more accurate view of demand, companies can align production and distribution more effectively.

Reduced costs and improved profit margins

Minimising overstocking and avoiding shortages leads to lower transportation costs and increased profitability.

Increased customer satisfaction

Ensuring product availability across all channels improves customer experience and brand loyalty.

How MEIO works

Nowadays supply chains have evolved from simple serial networks to multi-channel networks (see figure). In a serial network, a location will only ship products to the next level in the chain. On the other hand, in a multi-channel network, products can be distributed from a single location to multiple levels simultaneously. As the number of channels increases, the complexity within the chain grows exponentially.

Modern supply chains operate in multi-channel environments rather than traditional serial networks. To optimise inventory effectively, MEIO requires real-time data on:

• Demand patterns
• Stock levels
• Lead times
• Replenishment requirements
• Point of Sale (POS) data

In order to optimise inventory across an entire multi-channel environment, visibility is king! In an ideal world, all the required supply chain information would always be visible for everyone in the network. In order to ensure a smooth flow of goods, a lot of information (including purchase orders, demand forecasts, stock levels and lead times) must be shared between the different locations. The extent to which this information is accessible is what we call ‘visibility’. The level of visibility throughout the network determines how how accurately forecasts can be made and optimal order quantities calculated.

Common challenges when implementing MEIO

Implementing Multi-Echelon Inventory Optimisation (MEIO) offers clear advantages but it is not without its hurdles. Companies often face several challenges when introducing MEIO, ranging from technical integration to workforce adoption. Understanding these challenges upfront can help businesses prepare and ensure a smoother implementation process.

Data accuracy and management

For MEIO to work effectively, the underlying data must be accurate and up to date. Inconsistent stock records, delayed updates or errors in demand data can quickly lead to overstocking, stock-outs or misallocations. Organisations need to invest time in establishing robust data management practices, including regular audits and real-time updates across all locations to give MEIO the reliable information it needs to optimise inventory decisions.

Integration with existing systems

Many businesses rely on legacy ERP or warehouse management systems that were not built for multi-echelon optimisation. Connecting MEIO tools to these existing systems can be tricky, requiring careful planning and technical adjustments. Ensuring that data flows seamlessly between MEIO software and older systems is essential to avoid operational disruptions and fully leverage the potential of a network-wide inventory strategy.

Supplier coordination

A well-functioning MEIO system depends on reliable input from suppliers. Timely deliveries and accurate updates on inventory availability are crucial to maintaining balanced stock across the network. Coordinating multiple suppliers with different capabilities, systems and lead times can be complex. Building strong communication channels and collaborative planning routines helps ensure that suppliers align with the company’s optimisation goals.

Staff training and adoption

Introducing MEIO often means changing established workflows and introducing new software. Without proper training, staff may struggle to adopt new processes or use the system incorrectly, which can reduce the effectiveness of the optimisation. Providing clear instructions, hands-on training and ongoing support helps teams adapt more quickly and ensures that MEIO delivers the intended efficiency improvements.

In summary, while implementing MEIO can be challenging, careful attention to data quality, system integration, staff readiness, and supplier collaboration sets the foundation for a successful, efficient, and resilient multi-echelon inventory strategy.

Types of MEIO

Scenario 1: Single Echelon Network Planning

For the first scenario, we assume a traditional serial network exists. Only central-level information about lead times and stock level is available, and inventory planning is calculated on the basis of the historical demand at the central warehouse.

So when making forecasts, only the independent demand data from this central warehouse is taken into account. No information from the other locations or echelons is used, which can leave a business exposed to the bullwhip effect.

Scenario 2: Distribution Requirements Planning (DRP)

In the second scenario we assume that information about replenishment requirements and lead times of the proceeding channels is also available. Decisions are based on historical demand AND the replenishment requirements from underlying channels.

Communication plays a key role in this scenario; the exchanging of information within the network can reduce the bullwhip effect dramatically. In contrast to the first scenario, the forecast can be improved by taking into account the replenishment needs of the underlying locations and channels.

This way of planning is also known as Distribution Requirements Planning (DRP). For accurate forecasting, it is important that the information from lower levels is up-to-date and reliable. This scenario can deliver better results than the first, but it is more complex and still lacks full insight into actual customer demand.

Scenario 3: Integrated Multi-Echelon Network

In this third scenario we assume full visibility across all echelons of the network, including demand on consumer level. In this scenario inventory planning is driven by Point of Sales (POS) data. With this data, an optimal inventory and replenishment plan can be calculated for both the central and local branches. The uncertainty that leads to excess stock is minimised.

This model requires extensive data availability, the use of advanced planning tools and mathematical algorithms. Specialist knowledge is needed to implement and manage it effectively.

Choosing the right MEIO strategy

Companies should think carefully before they decide which scenario to adopt. The most advanced scenario doesn’t necessarily give the best results. It’s important that the network characteristics (such as number of branches, internal lead times, irregularity of demand), the information available and the optimisation targets are in balance with each other.

The table below shows the main criteria in considering the right scenario.

 Swipe horizontally on mobile to view the full table.

Final thoughts

Multi-Echelon Inventory Optimisation (MEIO) is a powerful strategy for businesses operating in complex supply chains. By choosing the right approach, leveraging technology, and improving visibility, companies can reduce costs, enhance efficiency, and boost customer satisfaction.