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DECENTRALIZED MULTIECHELON INVENTORY CONTROL
Author(s) -
ANDERSSON JONAS,
AXSÄTER SVEN,
MARKLUND JOHAN
Publication year - 1998
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.1998.tb00130.x
Subject(s) - economic shortage , inventory control , computer science , control (management) , holding cost , operations research , warehouse , inventory theory , reorder point , operations management , marginal cost , economic order quantity , carrying cost , total cost , business , mathematical optimization , supply chain , microeconomics , economics , mathematics , marketing , linguistics , philosophy , artificial intelligence , government (linguistics)
This paper considers a model for decentralized control of an inventory system consisting of 1 central warehouse and a number of retailers. The cost structure includes holding costs at both echelons and shortage costs proportional to the time until delivery at the retailers. We analyze a procedure for coordinated but still decentralized control of the system. The procedure is based on a simple approximation, in which the stochastic lead times perceived by the retailers are replaced by their correct averages. The approximation enables us to decompose the considered multiechelon inventory problem into a number of single echelon problems, 1 for each installation. The information about how a certain decision at the warehouse affects the retailers is conveyed through the marginal cost increase with respect to a change of the expected lead time. This information about the retailer costs is used as a shortage cost at the warehouse. We show that a coordination procedure based on this information can be used for finding near‐optimal reorder points for the system and provide bounds for the approximation errors.