Benefits of Centralized Stocking for the Multi-Centre Newsboy Problem with First Come, First Served Allocation

Abstract

In this paper, a multi-centre, one-period inventory problem is examined. The usual penalty cost of being out of stock is replaced by an assurance of service constraint at each location. That is, the inventory size will be constrained to meet a specific maximum probability of being out of stock at each location. The objective will be to show how to find the necessary starting inventory of a centralized system where orders are processed on a first come, first served basis. This can then be used to find the savings associated with the centralized inventory over a non-centralized one.