Coordinated replenishment strategies in inventory/distribution systems

Abstract

In this paper, we study the impact of coordinated replenishment and shipment in inventory/distribution systems. We analyze a system with multiple retailers and one outside supplier. Random demand occurs at each retailer, and the supplier replenishes all the retailers. In traditional inventory models, each retailer orders directly from the supplier whenever the need arises. We present a new, centralized ordering policy that orders for all retailers simultaneously. The new policy is equivalent to the introduction of a warehouse with no inventory that is in charge of the ordering, allocation, and distribution of inventory to the retailers. Under such a policy, orders for some retailers may be postponed or expedited so that they can be batched with other retailers' orders, which results in savings in ordering and shipping costs. In addition to the policy we propose for supplying inventory to the retailers, we also consider three other policies that are based on these well-known policies in the literature: (a) can-order policy, (b) echelon inventory policy, and (c) fixed-replenishment interval policy. Furthermore, we create a framework for simultaneously making inventory and transportation decisions by incorporating the transportation costs (or limited truck capacities). We numerically compare the performance of our proposed policy with these policies to identify the settings in which each policy would perform well. © 2007 INFORMS.