Near-optimal heuristics to set base stock levels in a two-echelon distribution network

R.J.I. Basten and G.J. van Houtum

International Journal of Production Economics, 2013, vol. 143, issue 2, 546-552

Abstract: We consider a continuous review two-echelon distribution network with one central warehouse and multiple local stock points, each facing independent Poisson demand for one item. Demands are fulfilled from stock if possible and backordered otherwise. We assume base stock control with one-for-one replenishments and the goal is to minimize the inventory holding and backordering costs. Although this problem is widely studied, only enumerative procedures are known for the exact optimization. A number of heuristics exist, but they find solutions that are far from optimal in some cases (over 20% error on realistic problem instances). We propose a heuristic that is computationally efficient and finds solutions that are close to optimal: 0.2% error on average and less than 5.0% error at maximum on realistic problem instances in our computational experiment.

Keywords: Service logistics; Spare parts inventories; Heuristic; Two-echelon; Distribution network (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527311004488
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:143:y:2013:i:2:p:546-552

DOI: 10.1016/j.ijpe.2011.10.018

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().