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Using the economical order quantity formula for inventory control in one‐warehouse multiretailer systems

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  • Gautier Stauffer

Abstract

In this article, we deal with the inventory control of one single product in a distribution network consisting of one warehouse and n retailers where the retailers face continuous demands with constant rates. We study two policies for this problem that are derived from the application of the classical economical ordering quantity formula at each location: the first policy is purely single‐echelon, whereas the second synchronizes the reorder intervals between the different installations and thus constitutes a first step toward a multiechelon perspective. We show that those policies are, respectively, \documentclass{article}\usepackage{mathrsfs}\usepackage{amsmath, amssymb}\pagestyle{empty}\begin{document}\begin{align*}\sqrt{2}\end{align*} \end{document} ‐ and 1.275‐optimal. We then conduct computational experiments and demonstrate that our second policy exhibits excellent average performance and improves substantially over the pure single‐echelon policy: in particular it deviates from Roundy's celebrated algorithm by less than 5%. This result indicates that in this simple setting, a great part of the benefit of shifting to a multiechelon perspective can be obtained by the most natural synchronization scheme between the different installations, and adapting single‐echelon policies can be efficient at managing the inventory in simple distribution networks, confirming observations of practitioners. © 2012 Wiley Periodicals, Inc. Naval Research Logistics, 2012

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  • Gautier Stauffer, 2012. "Using the economical order quantity formula for inventory control in one‐warehouse multiretailer systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 59(3‐4), pages 285-297, April.
  • Handle: RePEc:wly:navres:v:59:y:2012:i:3-4:p:285-297
    DOI: 10.1002/nav.21488
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    1. Ton de Kok & Fred Janssen & Jan van Doremalen & Erik van Wachem & Mathieu Clerkx & Winfried Peeters, 2005. "Philips Electronics Synchronizes Its Supply Chain to End the Bullwhip Effect," Interfaces, INFORMS, vol. 35(1), pages 37-48, February.
    2. Kevin H. Shang, 2008. "Note: A Simple Heuristic for Serial Inventory Systems with Fixed Order Costs," Operations Research, INFORMS, vol. 56(4), pages 1039-1043, August.
    3. Fangruo Chen & Awi Federgruen & Yu-Sheng Zheng, 2001. "Coordination Mechanisms for a Distribution System with One Supplier and Multiple Retailers," Management Science, INFORMS, vol. 47(5), pages 693-708, May.
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    Cited by:

    1. Gautier Stauffer, 2018. "Approximation algorithms for k-echelon extensions of the one warehouse multi-retailer problem," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 88(3), pages 445-473, December.
    2. Jean-Philippe Gayon & Guillaume Massonnet & Christophe Rapine & Gautier Stauffer, 2017. "Fast Approximation Algorithms for the One-Warehouse Multi-Retailer Problem Under General Cost Structures and Capacity Constraints," Mathematics of Operations Research, INFORMS, vol. 42(3), pages 854-875, August.
    3. Weihong Hu & Zhuoting Yu & Alejandro Toriello & Maged M. Dessouky, 2020. "Decomposition‐based approximation algorithms for the one‐warehouse multi‐retailer problem with concave batch order costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(7), pages 503-523, October.

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