Abstract：Inventorystrategy of two-echelon systems can divide into: ordering tactic and deliverytactic. This paper concentrated on the delivery tactic, in which have to studythe relationship between safety stock and transportation. So after analyzingthe effects of inventory centralizationor decentralization on safety stock andtransportation, we try to find the mathematic formulation express therelationship between the safety stock and transshipment in two-echelon systems.
1. Introduction
This paper addresses the problem of safety-stock and transshipments in a two-echelondistribution system. The two-echelon system consist of a central warehouse (CW)which supplies several remote warehouses (RW) where exogenous, stochasticdemands occur. At the beginning of every period, the CW places an order from anexogenous supply which arrives after a fixed lead time. The received order isthen allocated to the RW. The safety-stock can be allocated in both CW and RW.There are four alternative approaches to set the safety stock, and thedifferent stock can cause different transshipment in the distribution system.The choice of different transshipment strategy during the order cycle, has agreat impact on the whole cost of inventory system.
Generally, many research are concentrated on the orderstrategy and the distribution strategy. Little of them study about therelationship between the safety stock and the transshipment, which are ofteneffect each other, when one is increased the other will be discreased[5]. Eppenand Schrage (1981) analyzed the system without the redistribution, the CWallocates the receipt of the order entirely to the RW’s. Federgruen and Zipkin(1984) formulate a dynamic programming model for the Eppen and Schrage system.Josson and Silver (1987) considered the base-stock replenishment policy andredistribution during the cycle, and comparied the system-wide inventories ofeach of two allocation schemes: 1) the simple allocation scheme only; and 2)the simple allocation scheme with total redistribution one period before theend of the order cycle. Zinn, Lecy, and Bowersox (1989) introduced the conceptof portfolio effect in the case of two warehouses and analyzed the effects ofinventory centralization/decentralization on aggregate safety stock[5].