Multi-Item, One-Warehouse, Multi-Retailer Distribution Systems

Management Science · 1987 · Volume 33 · Issue 12

Abstract

In this paper we study the problem of coordinating the purchase and shipment of I items in a one-warehouse, N -retailer inventory system. The model includes positive echelon holding costs, fixed costs for ordering and shipping each item, and a fixed joint item order cost at each retailer. Demand for each item at each retailer is assumed to occur at a constant and continuous rate. A mathematical model is developed based on these assumptions and the assumption that a stationary nested policy is followed. An efficient algorithm is presented based on the problem's structure that involves only sorting and runs in O ( NI log NI ) time. The cost of the policy computed is proven to be within 6% of the cost of an optimal nested policy. An example is presented to illustrate the problem structure and the proposed algorithm.

Keywords

inventory, deterministic models, multi-echelon

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