This Article Full Text (PDF) References Alert me when this article is cited Alert me if a correction is posted Services Email this article to a friend Similar articles in this journal Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Cheung, K. L. Articles by Hausman, W. H. Search for Related Content

An Exact Performance Evaluation for the Supplier in a Two-Echelon Inventory System

Department of Information and Systems Management, The Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Department of Management Science and Engineering, Stanford University, Stanford, California 94305
imcheung{at}usthk.ust.hk
hausman{at}stanford.edu

This paper studies a continuous review two-echelon inventory system with a supplier serving multiple retailers. Each location uses a decentralized (Q, R) policy based on installation stocks. Each retailer may set a unique reorder quantity as a multiple of a basic packaging size Q. The supplier, in turn, adopts a similar batch replenishment policy. Our objective is to derive the exact steady-state performance for the supplier. We show that the inventory position at the supplier can be easily characterized by a uniform distribution. As a result, the closed-form expected cost function is tractable. We also examine the performance of approximation schemes such as the classic Poisson approximation. Our numerical results show that even though the Poisson approximation performs reasonably well in estimating steady-state performance, the cost penalty for using it in optimization may be significant.

Subject classifications: Inventory/production: operating characteristics: supplier performance evaluation: multi-echelon: two echelons: uncertainty; stochastic: random demand.
History: Received October 1996; revision received June 1997; revision received July 1998; revision received November 1998; revision received December 1998; accepted January 1999.

This article has been cited by other articles:

				K. Moinzadeh A Multi-Echelon Inventory System with Information Exchange Management Science, March 1, 2002; 48(3): 414 - 426. [Abstract] [PDF]

				G. P. Cachon Exact Evaluation of Batch-Ordering Inventory Policies in Two-Echelon Supply Chains with Periodic Review Operations Research, January 1, 2001; 49(1): 79 - 98. [Abstract] [PDF]