Inventory Cost Effect of Consolidating Several One-Warehouse Multiretailer Systems

Wei-Shi Lim (), Jihong Ou () and Chung-Piaw Teo ()
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Wei-Shi Lim: Department of Marketing, NUS Business School, National University of Singapore
Jihong Ou: Department of Decision Sciences, NUS Business School, National University of Singapore
Chung-Piaw Teo: Department of Decision Sciences, NUS Business School, National University of Singapore

Operations Research, 2003, vol. 51, issue 4, 668-672

Abstract: Consolidation of warehouses is a new trend in global logistics management, and the reduction in order processing and inventory costs is often cited as one of the main motivations. In this note we show that when retailers face constant demand rates and their ordering costs are independent of the warehouse that services them, consolidated systems are rarely suboptimal and always lead to close-to-optimal inventory replenishment costs. In particular, we prove that using two (one) properly selected warehouses, the systemwide inventory replenishment cost is in the worst case at most 2% (14.75%) more than the optimal.

Keywords: Inventory/production: multi-item/echelon/stage; deterministic; Facilities/equipment planning: location; discrete (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (4)

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