Cost Function and Optimal Boundaries for a Two-level Inventory System with Information Sharing and Two Identical Retailers

Document Type: Article

Authors

1 Information Science Department, University of Otago, Dunedin 9054, New Zealand

2 , Industrial Engineering Department, Sharif University of Technology, Tehran PO Box: 11365, Iran

3 Industrial Engineering Department, University of Science and Culture, Tehran, PO Box: 13145/871, Iran

Abstract

In this paper, we consider a two-echelon inventory system with a central warehouse and two identical retailers employing information sharing. Transportation times to each retailer and the warehouse are constant. Retailers face independent Poisson demand and apply continuous review policy, -policy. The warehouse initiates with m batches (of given size ) and places an order to an outside supplier when a retailer’s inventory position reaches , where  is the inventory position considered by central warehouse and  is a non-negative constant. So far, an approximate cost function as well as exact analysis of system for only one retailer has been proposed. However, the derivation of the exact value of the expected total cost of this system for more than one retailer, is still an open question. This paper attempts to meet this challenge and derive the exact cost function for two retailers. To achieve this purpose, we resort to conditional probability to split the problem into two simpler problems then we obtain the exact expected total cost of the system.

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