Order splitting in continuous review (Q, r) inventory models

Order splitting in continuous review (Q, r) inventory models

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Article ID: iaor19991067
Country: Netherlands
Volume: 95
Issue: 1
Start Page Number: 53
End Page Number: 61
Publication Date: Nov 1996
Journal: European Journal of Operational Research
Authors:
Keywords: economic order
Abstract:

A number of recent articles in the literature have argued the case, when lead time is variable, for splitting a replenishment order for Q between n suppliers by comparing this with the alternative of placing a single order for Q on one supplier. The split order compares favourably on the grounds that the arrival of the first component of a split order cannot be later than the arrival of an order from any one specified supplier. This note argues that an alternative comparison could be made with a policy of ordering Q/n from a single supplier (n times as often). It makes this comparison in the context of a continuous review (Q, r) inventory model but does so not by comparing aggregate costs but by fixing Q and the customer stock service level and comparing the average stock – an approach which is more appropriate to how many companies manage inventory in practice. We consider Poisson and deterministic demand processes, a general lead time distribution and both lost sales and backorder models.

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