Heuristic coordination of decentralized inventory systems using induced backorder costs

In this paper, we investigate a one-warehouse multiple-retailer system, where the inventory control decisions are coordinated using a near optimal induced backorder cost, ß*. All installations use continuous review installation-stock (R, Q) policies. The analysis builds on an approximation model where the stochastic warehouse delays are replaced by their correct averages. The contributions include insights as to how ß* is influenced by system parameters, and the determination of simple closed form ß* estimates. The latter offering a practical means to achieve coordinated control of large size systems.