A joint replenishment policy for multi-echelon inventory control

Abstract

A two-level inventory system with a central warehouse and a number of identical retailers is considered. The retailers face stationary and independent Poisson demand. The inventory positions are reviewed continuously. The warehouse uses a regular installation stock batch-ordering policy, but the retailers apply a new type of policy. When the sum of the retailer inventory positions declines to a certain “joint” reorder point, the retailer with the lowest inventory position orders a batch quantity. We show how the costs can be evaluated, and compare the policy both to an installation stock and to an echelon stock policy. The new policy gives, in general, slightly higher costs and can therefore only be motivated in certain situations.