A Power-of-Two Ordering Policy for One-Warehouse Multiretailer Systems with Stochastic Demand

Leon Yang Chu () and Zuo-Jun Max Shen ()
Additional contact information
Leon Yang Chu: Marshall School of Business, University of Southern California, Los Angeles, California 90089
Zuo-Jun Max Shen: Department of Industrial Engineering and Operations Research, University of California, Berkeley, California 94720

Operations Research, 2010, vol. 58, issue 2, 492-502

Abstract: We study a two-echelon supply chain with one warehouse and N (nonidentical) retailers facing stochastic demand. An easy-to-implement inventory policy, the so-called power-of-two (POT) policy, is proposed to manage inventory for the system. To maintain a certain service level, safety stocks are kept at the warehouse and each retailer outlet to buffer random demand. Our analysis highlights the important role of the warehouse safety stock level, which, in addition to the length of the warehouse order interval, significantly affects the lengths of the retailers' order intervals. By combining the length of the warehouse order interval with the warehouse safety stock level, we introduce a plane partition method and develop a polynomial time algorithm to find a POT policy for arbitrary target service levels. The long-run average cost of the proposed POT policy is guaranteed to be no more than 1.26 times the optimal POT policy cost. We also show that our proposed policy can be computed in O ( N 3 ).

Keywords: one-warehouse multiretailer system; approximation algorithm; analysis of algorithms (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.1090.0707 (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:oropre:v:58:y:2010:i:2:p:492-502

Access Statistics for this article

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