Stock rationing in a continuous review two-echelon inventory model

Sven Axsäter, Marcel Kleijn and Ton de Kok

No EI 9827, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper we consider a 1-warehouse, N-retailer inventory system where demand occurs at all locations. We introduce an inventory model which allows us to set different service levels for retailers and direct customer demand at the warehouse. For each retailer a critical level is defined, such that a retailer replenishment order is delivered from warehouse stock if and only if the stock level exceeds this critical level. It is assumed that retailer replenishment orders which are not satisfied from warehouse stock are delivered directly from the outside supplier, instead of being backlogged. We present an analytical upper bound on the total cost of the system, and develop a heuristic method to optimise the policy parameters. Numerical experiments indicate that our technique provides a very close approximation of the exact cost. Also, we show that differentiating among the retailers and direct customer demand can yield significant cost reductions.

Keywords: Stock rationing; heuristic method; two-echelon inventory model (search for similar items in EconPapers)
Date: 1998-08-13
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:1546

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