Introducing a new ordering policy in a two-echelon inventory system with Poisson demand

Abstract

In this paper we introduce a new ordering policy for inventory control in a two-echelon inventory system consisting of one central warehouse and a number of non-identical retailers. The warehouse uses a modified one-for-one policy, but the retailers apply a new policy which is different from the traditional inventory policies described in the literature of inventory and production control systems. In this system, each retailer constantly places an order for one unit of product to the central warehouse in a pre-determined time interval; i.e., the time interval between any two consecutive orders from each retailer is a fixed number and the quantity of each order is one. We then show how the inventory costs can be determined for this system. The most important advantage of this policy is that the warehouse is facing a uniform and deterministic demand originated by each retailer. Furthermore, a numerical example is provided to compare the performance of the new policy with the performance of the one-for-one policy in a two-echelon inventory system in terms of the total system cost.