MULTIECHELON VS SINGLE-ECHELON INVENTORY CONTROL POLICIES FOR LOW-DEMAND ITEMS

HAUSMAN W., ERKIP N.

MANAGEMENT SCIENCE, vol.40, no.5, pp.597-602, 1994 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 40 Issue: 5
  • Publication Date: 1994
  • Doi Number: 10.1287/mnsc.40.5.597
  • Journal Name: MANAGEMENT SCIENCE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.597-602
  • Keywords: INVENTORY PRODUCTION, MULTIECHELON SYSTEMS, SYSTEMS
  • Middle East Technical University Affiliated: No

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.