Periodic-Review Policy for a 2-Echelon Inventory Problem with Seasonal Demand

Abstract

This paper studies a two-level inventory system with one warehouse and n retailers under seasonal demand. All locations apply periodic review base-stock policy with echelon stock concept. The objective is to determine the inventory policy with minimum inventory cost respected to required service level. Three alternatives to determine inventory policies are proposed which are upper, lower and EOQ alternatives. Among these alternatives, it is found that, in case of positive ordering cost, upper-alternative policies give the lowest cost which is around 11% lower than other policies. In case of zero ordering cost, EOQ-alternative policies give the lowest cost which is around 20% lower than other policies. However, lower-alternative policies lead to the lower demand loss, its average loss is 0.07% while other policies’ loss can be as high as 0.22%.