Title:
A Continuous Approximation Approach for the Integrated Facility-Inventory Allocation Problem
A Continuous Approximation Approach for the Integrated Facility-Inventory Allocation Problem
Author(s)
Mangotra, Divya
Lu, Jye-Chyi
Tsao, Yu-Chung
Lu, Jye-Chyi
Tsao, Yu-Chung
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Abstract
In today's business many companies have a complex distribution network
with several national and regional distribution centers. In this
paper, we study an integrated facility location and inventory
allocation problem for designing a distribution network with multiple
national distribution centers (NDCs) and retailers. The key decisions
are where to locate the regional distribution centers (RDCs), how to
assign retail stores to RDCs and what should be the inventory policy
at the different locations such that the total network cost is
minimized. We model our problem using a Type-I (probability of
stock-outs) service level measure.
This paper presents a continuous approximation (CA) model for solving
the problem described above. The model takes a nonlinear form and
solution techniques are developed using the theory of nonlinear
programming. The main contribution of this work lies in developing a
refined CA modeling technique when the discrete data cannot be modeled
by a continuous function. Our methodology is illustrated on a real
life application of a leading US retailer. Numerical analysis suggests
that the total network cost is significantly lower in the case of the
integrated model as compared with the non-integrated model. It also
shows that the regular CA approach leads to a solution which is
inferior to the solution obtained by the modified CA approach. Our
analysis shows that the type of service measure used affects the
network design.
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Date Issued
2009
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Text
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Technical Report