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Continuous-Review Policies for a Multi-Echelon Inventory Problem with Stochastic Demand

Author

Listed:
  • Marc A. De Bodt

    (AGFA--Gevaert N.V., Septestraat 27, B-2510, Mortsel, Belgium)

  • Stephen C. Graves

    (Alfred P. Sloan School of Management, Massachusetts Institute of Technology, 50 Memorial Drive, Cambridge, Massachusetts 02139)

Abstract

This paper considers a multi-stage, serial inventory system. The demand for the end item is stochastic and stationary. The relevant costs include a fixed ordering cost and an echelon inventory holding cost for each stage, and a backordering cost for the end item. The objective is to find a continuous-review inventory control policy that minimizes the expected average costs. We present and analyze an approximate cost model. Our approximation is analogous to that for the traditional single-item, continuous-review inventory model that assumes a reorder-point, reorder-quantity policy. We obtain policies that are natural extensions to those for the single-item model.

Suggested Citation

  • Marc A. De Bodt & Stephen C. Graves, 1985. "Continuous-Review Policies for a Multi-Echelon Inventory Problem with Stochastic Demand," Management Science, INFORMS, vol. 31(10), pages 1286-1299, October.
    • Handle: RePEc:inm:ormnsc:v:31:y:1985:i:10:p:1286-1299
    DOI: 10.1287/mnsc.31.10.1286
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