Continuous-Review Policies for a Multi-Echelon Inventory Problem with Stochastic Demand

Marc A. De Bodt and Stephen C. Graves
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Marc A. De Bodt: AGFA--Gevaert N.V., Septestraat 27, B-2510, Mortsel, Belgium
Stephen C. Graves: Alfred P. Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02139

Management Science, 1985, vol. 31, issue 10, 1286-1299

Abstract: This paper considers a multi-stage, serial inventory system. The demand for the end item is stochastic and stationary. The relevant costs include a fixed ordering cost and an echelon inventory holding cost for each stage, and a backordering cost for the end item. The objective is to find a continuous-review inventory control policy that minimizes the expected average costs. We present and analyze an approximate cost model. Our approximation is analogous to that for the traditional single-item, continuous-review inventory model that assumes a reorder-point, reorder-quantity policy. We obtain policies that are natural extensions to those for the single-item model.

Keywords: inventory/production; approximations; multi-echelon; ordering; stochastic models (search for similar items in EconPapers)
Date: 1985
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Citations: View citations in EconPapers (26)

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