Optimal Position-Based Warehouse Ordering in Divergent Two-Echelon Inventory Systems

Sven Axsäter () and Johan Marklund ()
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Sven Axsäter: Department of Industrial Management and Logistics, Lund University, 221 00 Lund, Sweden
Johan Marklund: Department of Industrial Management and Logistics, Lund University, 221 00 Lund, Sweden

Operations Research, 2008, vol. 56, issue 4, 976-991

Abstract: A continuous-review two-echelon inventory system with one central warehouse and a number of nonidentical retailers is considered. The retailers face independent Poisson demand and apply standard ( R, Q ) policies. The retailer order quantities are fixed integer multiples of a certain batch size, representing the smallest pallet or container size transported in the system. A warehouse order may consist of one or several such batches. We derive a new policy for warehouse ordering, which is optimal in the broad class of position-based policies relying on complete information about the retailer inventory positions, transportation times, cost structures, and demand distributions at all facilities. The exact analysis of the new policy includes a method for determining the expected total inventory holding and backorder costs for the entire system. The class of position-based policies encompasses both the traditional installation-stock and echelon-stock ( R, Q ) policies, as well as the more sophisticated policies recently analyzed in the literature. The value of more carefully incorporating a richer information structure into the warehouse ordering policy is illustrated in a numerical study.

Keywords: inventory/production; multiechelon; policies; continuous review; stochastic; Poisson demand (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (20)

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