Integer-ratio policies for distribution/inventory systems

We study a multistage distribution/inventory system with a central warehouse and N retailers. Customer demand arrives at each retailer at a constant rate. The retailers replenish their inventories from the warehouse, which in turn orders from an outside supplier. It is assumed that shortages are not allowed and lead times are negligible. The goal is to determine policies which minimize the overall cost in the system, that is, the sum of the costs at each facility consisting of a fixed charge per order and a holding unit cost. We propose a heuristic procedure to compute near-optimal policies. Computational results on several randomly generated problems are reported.