Note--On Echelon Holding Costs

Leroy B. Schwarz and Linus Schrage
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Leroy B. Schwarz: University of Rochester
Linus Schrage: University of Chicago

Management Science, 1978, vol. 24, issue 8, 865-866

Abstract: The authors are indebted to Professor Andrew Szendrovits of McMaster University for pointing out that [Szendrovits, A. Z. A comment on "Optimal and system myopic policies for production/inventory assembly systems". Management Science, this issue.] the definition of echelon holding cost in [Schwarz, L. B., L. Schrage. 1975. Optimal and system myopic policies for multi-echelon production/inventory systems. Management Sci. 21 (11, July) 1285-1294.] does not relate the echelon holding cost rate at a stage to the more familiar explicit holding cost rate at a stage. As he indicates, if the relation between these two holding costs is not made explicit, a user might mistakenly use incorrect echelon rates. We give here an explicit relationship between stage and echelon rates, and prove that they give equivalent expressions for holding cost.

Date: 1978
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