Fill-Rate Optimization in a One-Warehouse N-Identical Retailer Distribution System

Leroy B. Schwarz, Bryan L. Deuermeyer and Ralph D. Badinelli
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Leroy B. Schwarz: Krannert Graduate School, Purdue University, West Lafayette, Indiana 47907
Bryan L. Deuermeyer: Department of Industrial Engineering, Texas A&M University, College Station, Texas 77843
Ralph D. Badinelli: School of Business, University of Kentucky, Louisville, Kentucky 40506

Management Science, 1985, vol. 31, issue 4, 488-498

Abstract: This paper examines the system fill-rate of a one-warehouse N-identical retailer distribution system as a function of warehouse and retailer safety stock. Using the approximation model of Deuermeyer and Schwarz (Deuermeyer, B. L., L. B. Schwarz. 1981. A model for the analysis of system service level in warehouse/retailer distribution systems: the identical retailer case. Chapter 8 in Multi-Level Production/Inventory Control Systems: Theory and Practice. North-Holland, Amsterdam.) we examine the problem of maximizing system fill-rate subject to a constraint on system safety stock. Optimal safety stock policy is characterized to be the intersection of a fill-rate policy line and the safety stock budget line. Properties of fill-rate policy lines are given. These properties may be used to provide managerial insight into system optimization and as the basis for heuristics. One heuristic, the vertical heuristic, based on the corresponding deterministic version of the problem, yields trivially simple and near-optimal policies.

Keywords: inventory/production; multi-echelon inventory system; fill-rate optimization (search for similar items in EconPapers)
Date: 1985
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