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

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Author

Summary, in English

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.

Publishing year

2008

Language

English

Pages

976-991

Publication/Series

Operations Research

Volume

56

Issue

4

Document type

Journal article

Publisher

Inst Operations Research Management Sciences

Topic

  • Transport Systems and Logistics

Status

Published

ISBN/ISSN/Other

  • ISSN: 0030-364X