Optimizing Replenishment Intervals For Two-Echelon Distribution Systems With Fixed Order Costs

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Executive Summary

The authors consider a periodic-review inventory system with one warehouse and N non-identical retailers. Each location has a positive lead time and orders according to a base-stock policy in fixed time interval. A fixed cost is incurred for each inventory reorder. The warehouse fills the retailers' orders in the same sequence as the original demand. The objective is to minimize the long-run average system cost per period. This paper provides an approach to obtain the optimal base-stock levels and reorder intervals. Specifically, for fixed reorder intervals, they show that the optimal base-stock levels can be obtained by generalizing a result in the literature. To find the optimal reorder intervals, they propose a complete enumeration on feasible solutions.

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