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Lower Bounds for Multi-Echelon Stochastic Inventory Systems

Author

Listed:
  • Fangruo Chen

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Yu-Sheng Zheng

    (Operations and Information Management Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

We establish lower bounds on the minimum cost of managing certain production-distribution networks with setup costs at all stages and stochastic demands. These networks include serial, assembly, and one-warehouse multi-retailer systems. We obtain the bounds through novel cost-allocation schemes. We evaluate the bounds' performance for one-warehouse multi-retailer systems by comparing them with simple, heuristic policies. The bounds are quite tight for systems with a small number of retailers. We also present simplified proof of known optimality results for serial and assembly systems.

Suggested Citation

  • Fangruo Chen & Yu-Sheng Zheng, 1994. "Lower Bounds for Multi-Echelon Stochastic Inventory Systems," Management Science, INFORMS, vol. 40(11), pages 1426-1443, November.
    • Handle: RePEc:inm:ormnsc:v:40:y:1994:i:11:p:1426-1443
    DOI: 10.1287/mnsc.40.11.1426
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