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Stock Rationing in a Continuous Review Two-Echelon Inventory Model

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Author

  • Sven Axsäter
  • M Kleijn
  • TG De Kok

Summary, in English

In this paper we consider a 1-warehouse, N-retailer inventory system where demand occurs at all locations. We introduce an inventory model which allows us to set different service levels for retailers and direct customer demand at the warehouse. For each retailer a critical level is defined, such that a retailer replenishment order is delivered from warehouse stock if and only if the stock level exceeds this critical level. It is assumed that retailer replenishment orders, which are not satisfied from warehouse stock, are delivered directly from the outside supplier, instead of being backlogged. We present an analytical upper bound on the total cost of the system, and develop a heuristic method to optimize the policy parameters. Numerical experiments indicate that our technique provides a very close approximation of the exact cost. Also, we show that differentiating among the retailers and direct customer demand can yield significant cost reductions.

Publishing year

2004

Language

English

Pages

177-194

Publication/Series

Annals of Operations Research

Volume

126

Issue

1-4

Document type

Journal article

Publisher

Springer

Topic

  • Transport Systems and Logistics

Keywords

  • allocation policy
  • multi-echelon
  • stochastic

Status

Published

ISBN/ISSN/Other

  • ISSN: 1572-9338