Exact analysis of the [formula omitted] inventory policy in a two-echelon production–inventory system

Abstract

We consider a two-echelon production–inventory system with a single manufacturer operating from a warehouse and a distribution center (DC) using the continuous review (R,Q) inventory policy where transportation times between the two echelons are generally distributed. We first derive the optimal reorder point at the DC, and then, propose a heuristic to approximate the optimal base-stock level in the warehouse as well as the batch order size at the DC.