Multi-Echelon vs. Single-Echelon Inventory Control Policies for Low-Demand Items
Warren H. Hausman, Nesim K. Erkip
Management Science · 1994 · Volume 40 · Issue 5
Abstract
Multi-echelon inventory systems are often controlled as a network of single-echelon inventory systems for simplicity of managerial authority, organizational control, and performance monitoring. This paper explores the amount of suboptimization in such a situation, using an actual demand data set provided by other researchers. We consider low-demand, high-cost items controlled on an ( S − 1, S ) basis, with all warehouse stockouts met on an emergency-ordering basis. We demonstrate that the suboptimality penalty for this data set is 3% to 5% when single-echelon systems are appropriately parameterized.
Keywords
inventory/production, multi-echelon systems
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