An optimal policy for a two depot inventory problem with stock transfer

An optimal policy for a two depot inventory problem with stock transfer

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Article ID: iaor1998583
Country: United States
Volume: 43
Issue: 2
Start Page Number: 173
End Page Number: 183
Publication Date: Feb 1997
Journal: Management Science
Authors: , ,
Keywords: programming: markov decision, programming: dynamic
Abstract:

Multiple depot inventory systems with stock transfer are used by many companies especially when demand is high relative to storage capacity. The key issues in such systems are how many of each item to hold at each depot and what to do if there is a demand for an item at a depot that has none of that item in stock. This study was motivated by the inventory problem faced by a UK car part retailer that groups its depots into pairs. The company's policy for dealing with a demand at a depot that cannot be satisfied from local stock is to either transfer the item from the other depot in the group or to place an emergency order. The object of this paper is to characterise an optimal policy for this problem and to propose a method of calculating the parameters of such a policy.

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