Echelon Reorder Points, Installation Reorder Points, and the Value of Centralized Demand Information

Fangruo Chen

Management Science, 1998, vol. 44, issue 12-Part-2, S221-S234

Abstract: We consider a serial inventory system with N stages. The material flows from an outside supplier to stage N, then to stage N - 1, etc., and finally to stage 1 where random customer demand arises. Each stage replenishes a stage-specific inventory position according to a stage-specific reorder point/order quantity policy. Two variations of this policy are considered. One is based on echelon stock, and the other installation stock. The former requires centralized demand information, while the latter does not. The relative cost difference between the two policies is called the value of centralized demand information. For fixed order quantities, we develop efficient algorithms for computing both the optimal echelon reorder points and the optimal installation reorder points. These algorithms enable us to conduct an extensive computational study to assess the value of centralized demand information and to understand how this value depends on several key system parameters, i.e., the number of stages, leadtimes, batch sizes, demand variability, and the desired level of customer service.

Keywords: Supply Chain Management; Stochastic Demand; Batch Ordering; Centralized Information; Electronic Data Interchange (search for similar items in EconPapers)
Date: 1998
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (78)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.44.12.S221 (application/pdf)

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:inm:ormnsc:v:44:y:1998:i:12-part-2:p:s221-s234

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().