Stock Positioning and Performance Estimation for Distribution Systems with Service Constraints

IIE Transactions, 40(12), pp. 1141-1157, 2008

17 Pages Posted: 14 Oct 2017 Last revised: 20 May 2018

See all articles by Özalp Özer

Özalp Özer

Jindal School of Management - The University of Texas at Dallas

Hongxia Xiong

Stanford University - Management Science & Engineering

Date Written: December 1, 2005

Abstract

The problem of minimizing average inventory costs in a distribution system consisting of one warehouse and multiple retailers subject to fill rate service constraints is studied. An effective algorithm to evaluate the optimal base-stock policy and cost under local control is provided. Properties of the optimal base-stock levels at each location are established. In addition, heuristics and closed-form approximations that yield insights into the drivers of system performance are also provided. An extensive numerical study to gain insight into the optimal solution, stock positioning and when to use the heuristics and approximations is presented. An example of how logistics postponement and fill-rate constraints affect the distribution system’s performance is quantified. A discussion on how to study and allocate stocks across an arborescence system with more than two echelons is presented.

Keywords: Inventory/production, multi-stage, fill rate, stock positioning, newsvendor solution, heuristics and approximations

Suggested Citation

Özer, Özalp and Xiong, Hongxia, Stock Positioning and Performance Estimation for Distribution Systems with Service Constraints (December 1, 2005). IIE Transactions, 40(12), pp. 1141-1157, 2008. Available at SSRN: https://ssrn.com/abstract=3052052 or http://dx.doi.org/10.2139/ssrn.3052052

Özalp Özer (Contact Author)

Jindal School of Management - The University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States

Hongxia Xiong

Stanford University - Management Science & Engineering ( email )

Stanford, CA 94305-4026
United States

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