Determining the Pareto set in a bicriteria two-echelon inventory/distribution system

This article concerns two-echelon inventory/distribution system, consisting of a warehouse and a retailer. We assume that the demand is deterministic and stockouts are not permitted. Two criteria are considered: to minimize the annual inventory cost and the annual total number of damaged items by improper shipment handling. The problem consists of determining the non-dominated inventory policies in such a way that the trade-off between both criteria is achieved. We present the characterization of the non-dominated optimal solution set and we use this result to correct the solution method previously proposed by other authors for a problem with identical cost structure. An efficient algorithm to calculate the non-dominated solution set is introduced. Computational results on several randomly generated problems are reported.