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On the First Come-First Served Rule in Multi-Echelon Inventory Control

Axsäter, Sven LU (2007) In Naval Research Logistics 54(5). p.485-491
Abstract
A two-echelon distribution inventory system with a central warehouse and a number of retailers is considered. The retailers face stochastic demand and replenish from the warehouse, which, in turn, replenishes from an outside supplier. The system is reviewed continuously and demands that cannot be met directly are backordered. Standard holding and backorder costs are considered. In the literature on multi-echelon inventory control it is standard to assume that backorders at the warehouse are served according to a first come-first served policy (FCFS). This allocation rule simplifies the analysis but is normally not optimal. It is shown that the FCFS rule can, in the worst case, lead to an asymptotically unbounded relative cost increase as... (More)
A two-echelon distribution inventory system with a central warehouse and a number of retailers is considered. The retailers face stochastic demand and replenish from the warehouse, which, in turn, replenishes from an outside supplier. The system is reviewed continuously and demands that cannot be met directly are backordered. Standard holding and backorder costs are considered. In the literature on multi-echelon inventory control it is standard to assume that backorders at the warehouse are served according to a first come-first served policy (FCFS). This allocation rule simplifies the analysis but is normally not optimal. It is shown that the FCFS rule can, in the worst case, lead to an asymptotically unbounded relative cost increase as the number of retailers approaches infinity. We also provide a new heuristic that will always give a reduction of the expected costs. A numerical study indicates that the average cost reduction when using the heuristic is about two percent. The suggested heuristic is also compared with two existing heuristics. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
two-level, inventory management, stochastic demand, allocation rule
in
Naval Research Logistics
volume
54
issue
5
pages
485 - 491
publisher
John Wiley & Sons
external identifiers
  • wos:000248195600003
  • scopus:34547654073
ISSN
0894-069X
DOI
10.1002/nav.20225
language
English
LU publication?
yes
id
43890dbf-b8f9-4f79-b977-62ec95c687d5 (old id 629488)
date added to LUP
2008-02-04 12:22:49
date last changed
2017-09-10 04:47:48
@article{43890dbf-b8f9-4f79-b977-62ec95c687d5,
  abstract     = {A two-echelon distribution inventory system with a central warehouse and a number of retailers is considered. The retailers face stochastic demand and replenish from the warehouse, which, in turn, replenishes from an outside supplier. The system is reviewed continuously and demands that cannot be met directly are backordered. Standard holding and backorder costs are considered. In the literature on multi-echelon inventory control it is standard to assume that backorders at the warehouse are served according to a first come-first served policy (FCFS). This allocation rule simplifies the analysis but is normally not optimal. It is shown that the FCFS rule can, in the worst case, lead to an asymptotically unbounded relative cost increase as the number of retailers approaches infinity. We also provide a new heuristic that will always give a reduction of the expected costs. A numerical study indicates that the average cost reduction when using the heuristic is about two percent. The suggested heuristic is also compared with two existing heuristics.},
  author       = {Axsäter, Sven},
  issn         = {0894-069X},
  keyword      = {two-level,inventory management,stochastic demand,allocation rule},
  language     = {eng},
  number       = {5},
  pages        = {485--491},
  publisher    = {John Wiley & Sons},
  series       = {Naval Research Logistics},
  title        = {On the First Come-First Served Rule in Multi-Echelon Inventory Control},
  url          = {http://dx.doi.org/10.1002/nav.20225},
  volume       = {54},
  year         = {2007},
}