Journal
OPERATIONS RESEARCH
Volume 57, Issue 1, Pages 146-156Publisher
INFORMS
DOI: 10.1287/opre.1070.0491
Keywords
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Funding
- National Science Foundation [CMMI-0654116]
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We consider the one-warehouse multiple retailer inventory model with a submodular joint setup cost function. The objective of this model is to determine an inventory replenishment policy that minimizes the long-run average system cost over an infinite time horizon. Although the optimal policy for this problem is still unknown, a class of easy-to-implement power-of-two policies are 98% effective. This paper focuses on how the cost, under an optimal power-of-two policy, should be allocated to the retailers. This question generates an interesting cooperative game. We prove that this cooperative game has a nonempty core. The key to our result is a strong duality theorem for the one-warehouse multiple retailer problem under power-of-two policies.
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