Two-Interval Inventory-Allocation Policies in a One-Warehouse N-Identical-Retailer Distribution System

Edward J. McGavin, Leroy B. Schwarz and James E. Ward
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Edward J. McGavin: Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907
Leroy B. Schwarz: Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907
James E. Ward: Krannert Graduate School of Management, Purdue University, West Lafayette, Indiana 47907

Management Science, 1993, vol. 39, issue 9, 1092-1107

Abstract: For a system of N-identical-retailers we construct a model for determining warehouse inventory-allocation policies which minimize system lost sales per retailer between system replenishments. An allocation policy is specified by: (a) the number of withdrawals from warehouse stock; (b) the intervals between successive withdrawals; (c) the quantity of stock to be withdrawn from the warehouse in each interval; and (d) the division of withdrawn stock among the retailers. We show that in the case of two withdrawals, available stock in each interval should be divided to "balance" retailer inventories. We also develop an infinite-retailer model and use it to determine two-interval allocation heuristics for N-retailer systems. Simulation tests suggest that the infinite-retailer heuristic policies are near-optimal for as few as two retailers. Simulation tests indicate that the risk-pooling benefits of allocation policies with two well-chosen intervals are comparable to those of base-stock policies with four equal intervals.

Keywords: multi-echelon inventory; distribution; inventory allocation (search for similar items in EconPapers)
Date: 1993
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