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Cost Allocation for Joint Replenishment Models

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  • Jiawei Zhang

    (Department of Information, Operations, and Management Sciences, Stern School of Business, New York University, New York, New York 10012)

Abstract

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.

Suggested Citation

  • Jiawei Zhang, 2009. "Cost Allocation for Joint Replenishment Models," Operations Research, INFORMS, vol. 57(1), pages 146-156, February.
    • Handle: RePEc:inm:oropre:v:57:y:2009:i:1:p:146-156
    DOI: 10.1287/opre.1070.0491
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    References listed on IDEAS

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