A two-echelon allocation model and the value of information under correlated forecasts and demands


Gullu R.

EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, vol.99, no.2, pp.386-400, 1997 (Journal Indexed in SCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 99 Issue: 2
  • Publication Date: 1997
  • Doi Number: 10.1016/s0377-2217(96)00166-x
  • Title of Journal : EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
  • Page Numbers: pp.386-400

Abstract

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 value of information provided by keeping track of the forecasts, we construct a comparable inventory system operating under a standard demand model. We demonstrate that the standard demand model results in higher order-up-to levels and higher system costs. (C) 1997 Elsevier Science B.V.