Integrated versus individual approach in products distribution networks

The purpose of this paper is to compare the effectiveness of two approaches for inventory management in a network of retailers. In the individual approach, each retailer independently orders products from the central warehouse at the beginning of the commercial season, when demand is still uncertain. In the integrated approach, the first stage of ordering from the central warehouse is followed by a process of exchange of products between the retailers once real demands are known with certainty. In terms of modelling and methodology, the basic newsvendor model specialises in the case of discrete probability distributions. The compound distribution generates scenarios that allow solving the stochastic optimisation problem of expected profit maximisation as a deterministic problem. A real industrial example provides a numerical application in this study. The results indicate that the integrated approach increases the total expected profit of the network. It also improves the service level for customers and the efficiency of transport.