Multi-echelon inventory control in divergent systems with shipping frequencies; Theory and methodology

We consider inventory control in a two-echelon divergent network, consisting of a central depot and multiple (non-identical) local warehouses. Past research has shown that (R, S) order-up-to control rules for this system type can easily be obtained using a decomposition approach, where the derivation of the order-up-to level S is separated from the derivation of the rationing parameters. We show that a similar approach can be used to solve models including different shipment frequencies at the two levels. For example, a central depot receives replenishment orders every four weeks, while replenishment orders to several local warehouses are shipped weekly. In this way, inventory imbalance can be reduced compared to immediate shipment to the local warehouses after goods receipt by the central depot. A method is presented to determine the control parameters such that target fill rates for the local warehouses are obtained. Extensive experimentation with the model shows that the stock reduction is relatively small for identical holding costs throughout the network. Then the largest reduction (6.6%) is obtained in case of frequent resupply in the downstream part of the network. Different shipment frequencies appear to be more useful if central holding costs are (considerably) less than local holding costs.