Optimal allocation policies in a two-echelon inventory problem with fixed shipment costs

Date

1996-12-01

Author

Gullu, R
Erkip, N

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

151
views

0
downloads

This study investigates the stock allocation problems in a two-echelon distribution system which consists of a central warehouse and two identical retailers. We restrict our attention to two-period order cycles where the period lengths are allowed to be different. Shipments from the supplier to the warehouse arrive at the beginning of the order cycle (i.e. at the beginning of the first period). In each order cycle, there are two shipment opportunities from the warehouse to the retailers: at the beginning of the first and the second periods. In each shipment realization a fixed shipment cost is incurred. In each period a random demand is observed at each retailer (which is assumed to follow a normal distribution). The overall two-stage problem is to determine the optimal allocation policies at the beginning of each period, so that the expected two-period inventory holding, shortage and the shipment costs will be minimum. In this work, we characterize the optimal policy for the second period allocation problem as a function of the stock levels of the retailers at the beginning of the second period, and the reserve stock held at the warehouse. Furthermore, we provide sufficient conditions for which realizing an allocation yields inferior expected costs over keeping the reserve stock at the warehouse. A simulation model is employed to find the optimal first period decision parameters.

Subject Keywords

Multi-echelon inventory, Allocation, Fixed costs

URI

https://hdl.handle.net/11511/64500

Journal

INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS

DOI

https://doi.org/10.1016/0925-5273(95)00174-3

Collections

Department of Educational Sciences, Article

Suggestions

OpenMETU
Core

Optimal production and inventory policies of priority and price-differentiated customers Duran, Serhan; SİMCHİ-LEVİ, David; Swann, Julie L. (2007-01-01) Many firms are exploring production and supply chain strategies when customers may be segmented into different classes based on service level or priority. Such segmentation can result in a more efficient production system as well as a better match between supply and demand. In this research, we analyze a system with customer classes 1 and 2, where customer class 1 has a higher priority of fulfillment than customer class 2 in the same period. We develop an optimal production and inventory strategy that ratio...
Joint quantity flexibility for multiple products in a decentralized supply chain Karakaya, Selcuk; Bakal, İsmail Serdar (2013-02-01) In this study, we analyze a decentralized supply chain with a single retailer and a single manufacturer where the retailer sells multiple products in a single period. The products differ in terms of a limited number of features only. The retailer places initial orders based on preliminary demand forecasts at the beginning of the period and has an opportunity to modify its initial order after receiving perfect demand information. However, the final orders of the retailer are constrained by its initial orders...
Optimal pricing and production decisions in utilizing reusable containers Atamer, Busra; Bakal, İsmail Serdar; Bayındır, Zeynep Pelin (2013-06-01) In this study, we focus on pricing and production decisions in utilizing reusable containers with stochastic customer demand. We consider a manufacturer that sells a single product to the customers in reusable containers with two supply options: (i) brand-new containers and (ii) returned containers from customers. The return quantity depends on both customer demand and the acquisition fee determined by the manufacturer. The unit cost of production using brand-new containers is different than the unit cost o...
OPTIMAL CENTRALIZED ORDERING POLICIES IN MULTIECHELON INVENTORY SYSTEMS WITH CORRELATED DEMANDS ERKIP, N; HAUSMAN, WH; NAHMIAS, S (Institute for Operations Research and the Management Sciences (INFORMS), 1990-03-01) This paper treats a depot-warehouse system in which demand occurs at the warehouse or retail level. This work differs from a number of other studies in that we allow item demands to be correlated both across warehouses and also correlated in time. Our motivation for this generalization arises from our experience with an actual system of this type used by a major national producer and distributor of consumer products. We observed both high correlations between successive monthly demands (around 0.7) and corr...
A two-echelon allocation model and the value of information under correlated forecasts and demands Gullu, R (1997-06-01) In this article we explore the effects of incorporating forecasts explicitly in a two-echelon allocation model which consists of a central depot and several retailers. In particular, we investigate the possible benefits on the system costs and inventory levels. The depot does not hold any inventory and the demand is observed only at the retailers. Under a general correlated demand-forecast structure we obtain the approximate system-wide order-up-to level and the expected system cost. In order to assess the ...

Citation Formats

R. Gullu and N. Erkip, “Optimal allocation policies in a two-echelon inventory problem with fixed shipment costs,” INTERNATIONAL JOURNAL OF PRODUCTION ECONOMICS, pp. 311–321, 1996, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/64500.