Solving the one-warehouse N-retailers problem with stochastic demand: An inter-ratio policies approach

In this paper, we consider a two-echelon supply chain in which one warehouse provides a single product to N retailers, using integer-ratio policies. Deterministic version of the problem has been widely studied. However, this assumption can lead to inaccurate and ineffective decisions. In this research, we tackle the stochastic version of two-echelon inventory system by designing an extension of a well-known heuristic. This research considers customer demands as following a normal density function. A set of 240 random instances was generated and used in evaluating both the deterministic and stochastic solution approaches. Due to the nature of the objective function, evaluation was carried out via Monte Carlo simulation. For variable demand settings, computational experiments shows that: i) the use of average demand to define the inventory policy implies an underestimation of the total cost and ii) the newly proposed method offers cost savings. (C) 2021 by the authors; licensee Growing Science, Canada

Automated summary

This research focuses on the stochastic version of a two-echelon inventory system by designing an extension of a well-known heuristic, considering customer demands following a normal density function. Evaluation was conducted through generating 240 random instances and comparing deterministic and stochastic solution approaches. Computational experiments demonstrate that using average demand for inventory policy underestimates total cost, while the newly proposed method offers cost savings.