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- Title
Global optimization of two-echelon serial chains with replenishment costs.
- Authors
LAGODIMOS, A. G.; SKOURI, K.; CHRISTOU, I. T.
- Abstract
We consider a two-echelon serial supply chain, facing a stationary stochastic demand process. Depot and retailer use periodic review base-stock (S, T) policies, whose review intervals are unrelated; so they may differ in any direction and need not satisfy any constraint (e.g. integer ratio relationship). Inventory holding and backorders (occurring at the retailer) carry linear penalty costs. Replenishments at each echelon are charged by a respective fixed cost. We seek the order up-to levels and review intervals at both echelons that minimize average cost (per unit period). Under mild demand assumptions, we model cost and present three properties that underlie the optimal solution: (i) for any fixed review intervals, the classical Clark-Scarf decomposition, with the associated Newsvendor equations, applies; (ii) the retailer review interval never exceeds that of the depot at global optimum; (iii) the optimal cost, of an appropriately designed single-echelon system, provides a lower bound for the optimal total cost of the two-echelon chain. The solution algorithm, established on the basis of these properties, guarantees global optimum determination in finite number of steps. We use numerical computations to investigate some interesting system design issues and discuss some important managerial implications of the respective findings.
- Subjects
SUPPLY chains; STOCHASTIC analysis; GLOBAL optimization; INVENTORIES; BACK orders
- Publication
IMA Journal of Management Mathematics, 2017, Vol 28, Issue 2, p205
- ISSN
1471-678X
- Publication type
Article
- DOI
10.1093/imaman/dpv028