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Optimal Policies for a Multi-Echelon Inventory Problem with Periodic Ordering

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  • Felipe K. Tan

    (Western Electric Engineering Research Center)

Abstract

A central warehouse supplies two facilities with a product. The facilities are subject in each time period to stochastic demands. The warehouse can allocate stock to the facilities in each period, but can reorder from an exogenous source only after every T periods. Assuming convex holding and shortage costs, linear ordering and allocation costs, backlogging and no transshipment between facilities, the optimal ordering and allocation policies are characterized. It is also shown that after the last ordering instant, the optimal allocation policy reduces to a much simpler form when the cost-functions are separable in their variables, and that results on the zero time lag allocation problem apply to the fixed time lag case when the holding and shortage costs are functions only of the facility inventories and the total system inventory.

Suggested Citation

  • Felipe K. Tan, 1974. "Optimal Policies for a Multi-Echelon Inventory Problem with Periodic Ordering," Management Science, INFORMS, vol. 20(7), pages 1104-1111, March.
    • Handle: RePEc:inm:ormnsc:v:20:y:1974:i:7:p:1104-1111
    DOI: 10.1287/mnsc.20.7.1104
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    Cited by:

    1. Albert Y. Ha, 2000. "Stock Rationing in an M/E k /1 Make-to-Stock Queue," Management Science, INFORMS, vol. 46(1), pages 77-87, January.
    2. Ugarte, Armando & Oren, Shmuel, 2000. "Coordination of internal supply chains in vertically integrated high-tech manufacturing organizations (HTMOs)," International Journal of Production Economics, Elsevier, vol. 67(3), pages 235-252, October.
    3. Gullu, Refik & Erkip, Nesim, 1996. "Optimal allocation policies in a two-echelon inventory problem with fixed shipment costs," International Journal of Production Economics, Elsevier, vol. 46(1), pages 311-321, December.
    4. Barut, M. & Sridharan, V, 2004. "Design and evaluation of a dynamic capacity apportionment procedure," European Journal of Operational Research, Elsevier, vol. 155(1), pages 112-133, May.
    5. Mila Nambiar & David Simchi‐Levi & He Wang, 2021. "Dynamic Inventory Allocation with Demand Learning for Seasonal Goods," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 750-765, March.

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