The break quantity rule in a 1-warehouse, N-retailers distribution system

Rommert Dekker, Marcel Kleijn and A.G. de Kok

No EI 9624-/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper the effect of the break quantity rule on the inventory costs in a 1-warehouse, N-retailers distribution system is analyzed. The break quantity rule is to deliver large orders from the warehouse, and small orders from the nearest retailer, where a so--called break quantity determines whether an order is small or large. Under the assumptions that the stock at the warehouse can only be used to satisfy large orders, and that demand during the leadtimes is normally distributed, an expression for the inventory costs is derived. The objective of this paper is to provide insight into the effect of the break quantity rule on the inventory holding costs, and therefore we present extensive computational results, showing that in many cases the rule leads to a significant cost reduction.

Keywords: break quantity rule; inventory; multi-echelon distribution systems (search for similar items in EconPapers)
Date: 1996-01-01
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