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Inventory Cost Effect of Consolidating Several One-Warehouse Multiretailer Systems

Author

Listed:
  • Wei-Shi Lim

    (Department of Marketing, NUS Business School, National University of Singapore)

  • Jihong Ou

    (Department of Decision Sciences, NUS Business School, National University of Singapore)

  • Chung-Piaw Teo

    (Department of Decision Sciences, NUS Business School, National University of Singapore)

Abstract

Consolidation of warehouses is a new trend in global logistics management, and the reduction in order processing and inventory costs is often cited as one of the main motivations. In this note we show that when retailers face constant demand rates and their ordering costs are independent of the warehouse that services them, consolidated systems are rarely suboptimal and always lead to close-to-optimal inventory replenishment costs. In particular, we prove that using two (one) properly selected warehouses, the systemwide inventory replenishment cost is in the worst case at most 2% (14.75%) more than the optimal.

Suggested Citation

  • Wei-Shi Lim & Jihong Ou & Chung-Piaw Teo, 2003. "Inventory Cost Effect of Consolidating Several One-Warehouse Multiretailer Systems," Operations Research, INFORMS, vol. 51(4), pages 668-672, August.
    • Handle: RePEc:inm:oropre:v:51:y:2003:i:4:p:668-672
    DOI: 10.1287/opre.51.4.668.16092
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    References listed on IDEAS

    as
    1. Robin Roundy, 1985. "98%-Effective Integer-Ratio Lot-Sizing for One-Warehouse Multi-Retailer Systems," Management Science, INFORMS, vol. 31(11), pages 1416-1430, November.
    2. Guillermo Gallego, 1998. "New Bounds and Heuristics for (Q, r) Policies," Management Science, INFORMS, vol. 44(2), pages 219-233, February.
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    Cited by:

    1. Yu Li & Jia Shu & Xi Wang & Naihua Xiu & Dachuan Xu & Jiawei Zhang, 2013. "Approximation Algorithms for Integrated Distribution Network Design Problems," INFORMS Journal on Computing, INFORMS, vol. 25(3), pages 572-584, August.
    2. Jia Shu, 2010. "An Efficient Greedy Heuristic for Warehouse-Retailer Network Design Optimization," Transportation Science, INFORMS, vol. 44(2), pages 183-192, May.
    3. Chung-Piaw Teo & Jia Shu, 2004. "Warehouse-Retailer Network Design Problem," Operations Research, INFORMS, vol. 52(3), pages 396-408, June.
    4. Saif, Ahmed & Elhedhli, Samir, 2016. "Cold supply chain design with environmental considerations: A simulation-optimization approach," European Journal of Operational Research, Elsevier, vol. 251(1), pages 274-287.

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