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

Author

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  • Sven Axsäter

    (Department of Industrial Management and Logistics, Lund University, 221 00 Lund, Sweden)

  • Johan Marklund

    (Department of Industrial Management and Logistics, Lund University, 221 00 Lund, Sweden)

Abstract

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.

Suggested Citation

  • Sven Axsäter & Johan Marklund, 2008. "Optimal Position-Based Warehouse Ordering in Divergent Two-Echelon Inventory Systems," Operations Research, INFORMS, vol. 56(4), pages 976-991, August.
    • Handle: RePEc:inm:oropre:v:56:y:2008:i:4:p:976-991
    DOI: 10.1287/opre.1080.0560
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    Cited by:

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    7. Amir Hosein Afshar Sedigh & Rasoul Haji & Seyed Mehdi Sajadifar, 2023. "The Cost Function of a Two-Level Inventory System with identical retailers benefitting from Information Sharing," Papers 2312.03898, arXiv.org.
    8. Andersson, Jonas & Malmberg, Filip & Marklund, Johan, 2023. "Exact analysis of One-Warehouse-Multiple-Retailer inventory systems with quantity restricted deliveries," European Journal of Operational Research, Elsevier, vol. 309(3), pages 1161-1172.
    9. Geng, Wei & Qiu, Minmin & Zhao, Xiaobo, 2010. "An inventory system with single distributor and multiple retailers: Operating scenarios and performance comparison," International Journal of Production Economics, Elsevier, vol. 128(1), pages 434-444, November.
    10. Johan Marklund & Kaj Rosling, 2012. "Lower Bounds and Heuristics for Supply Chain Stock Allocation," Operations Research, INFORMS, vol. 60(1), pages 92-105, February.
    11. Guerrero, W.J. & Yeung, T.G. & Guéret, C., 2013. "Joint-optimization of inventory policies on a multi-product multi-echelon pharmaceutical system with batching and ordering constraints," European Journal of Operational Research, Elsevier, vol. 231(1), pages 98-108.
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    14. F. Kleintje-Ell & G. Kiesmüller, 2015. "Cost minimising order schedules for a capacitated inventory system," Annals of Operations Research, Springer, vol. 229(1), pages 501-520, June.
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    16. Stenius, Olof & Marklund, Johan & Axsäter, Sven, 2018. "Sustainable multi-echelon inventory control with shipment consolidation and volume dependent freight costs," European Journal of Operational Research, Elsevier, vol. 267(3), pages 904-916.
    17. Christian Howard & Johan Marklund & Tarkan Tan & Ingrid Reijnen, 2015. "Inventory Control in a Spare Parts Distribution System with Emergency Stocks and Pipeline Information," Manufacturing & Service Operations Management, INFORMS, vol. 17(2), pages 142-156, May.
    18. Darmawan, Agus & Wong, Hartanto & Thorstenson, Anders, 2021. "Supply chain network design with coordinated inventory control," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    19. Olof Stenius & Ayşe Gönül Karaarslan & Johan Marklund & A. G. de Kok, 2016. "Exact Analysis of Divergent Inventory Systems with Time-Based Shipment Consolidation and Compound Poisson Demand," Operations Research, INFORMS, vol. 64(4), pages 906-921, August.
    20. Karzan Mahdi Ghafour & Nerda ZuraZaibidi, 2014. "A Simulation Approach to Determine the Probability of Demand during Lead-Time When Demand Distributed Normal and Lead-Time Distributed Gamma," Journal of Economics and Behavioral Studies, AMH International, vol. 6(11), pages 840-847.

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