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Myopic Allocation in Two-level Distribution Systems with Continuous Review and Time Based Dispatching
Linköping University, Department of Mathematics.
2007 (English)Independent thesis Advanced level (degree of Magister), 20 points / 30 hpStudent thesis
Abstract [en]

This thesis studies the allocation of stock in a two-level inventory system with stochastic demand. The system consists of one central warehouse which supplies N non-identical retailers with one single product. Customer demand occurs solely at the retailers and follows independent Poisson processes. The purpose is to investigate the value of using a more advanced allocation policy than First Come-First Serve at the central warehouse. The focus is on evaluating how well the simple First Come-First Serve assumption works in a system where the warehouse has access to real-time point-of-sale data, and where shipments are time based and consolidated for all retailers. The considered allocation policy is a myopic policy where the solution to a minimization problem, formulated as a constrained newsvendor problem, determines how the warehouse allocates its stock to the retailers. The minimization problem is solved using (a heuristic method based on) Lagrangian relaxation, and simulation is used to evaluate the average inventory holding costs and backorder costs per time unit when using the considered policy. The simulation study shows that cost savings around 1-4 percent can be expected for most system configurations. However, there were cases where savings were as high as 5 percent, as well as cases where the policy performed worse than First Come-First Serve. The study also shows that the highest cost savings are found in systems with relatively low demand, few retailers, short transportation times and a short time interval between shipments.

Place, publisher, year, edition, pages
Matematiska institutionen , 2007. , 88 p.
Keyword [en]
Inventory Theory, Distribution System, Allocation Policy, Newsvendor Problem, Lagrangian Heuristic, Simulation
National Category
Computational Mathematics
URN: urn:nbn:se:liu:diva-10410ISRN: LITH–MAT-EX––07/17––SEOAI: diva2:17153
2007-11-02, Kompakta rummet, B-huset, Linköpings Universitet, 581 83 Linköping, 13:15
Available from: 2008-01-25 Created: 2008-01-25

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