Directed assignment vs. customer choice in location inventory models

Oded Berman, Dmitry Krass and Mozart B.C. Menezes

International Journal of Production Economics, 2016, vol. 179, issue C, 179-191

Abstract: We analyze two different mechanisms for assigning customers to locations in inventory location models: Direct Assignment (DA), where customers are assigned by the system operator to optimize overall system performance; and, Customer Choice (CC), where customers self-assign to the most convenient (generally closest) open facility. DA is natural for remote retailing settings while CC is more common in traditional “brick and mortar” setting. The key question we address is: how much advantage does the DA mechanism hold over CC? We derive a number of structural results and show that the gap is maximized when the customer demand is maximally balanced between the facilities. While the theoretical gap is shown to be quite large, computational experiments indicate that the opposite holds for fully optimized systems. In fact, the presence of a large gap in an existing system is a strong indicator that the facility network is not optimal.

Keywords: Location; Facilities planning and design; Distribution; Inventory (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527316301050
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:179:y:2016:i:c:p:179-191

DOI: 10.1016/j.ijpe.2016.06.002

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 ().