Considered is a two-level inventory system with one central warehouse and N retailers facing different independent compound Poisson demand processes. The retailers replenish from the warehouse and the warehouse from an outside supplier. All facilities apply continuous review installation stock (R,Q) policies with different reorder points and batch quantities. Presented is a new approximate method for evaluation of holding and shortage costs, which can be used to select optimal policies. The accuracy of the approximation is evaluated by comparison with exact simulated results.
