Simple Newsvendor Heuristics for Two-Echelon Distribution NetworksReport as inadecuate


Simple Newsvendor Heuristics for Two-Echelon Distribution Networks


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We consider the problem of determining stocking levels in a multi-echelon distribution networkconsisting of a warehouse and n non-identical retail locations. Lead-times are deterministic, there are nofixed ordering costs, and unmet demand is backlogged. Both Clark and Scarf 1960 and Federgruen andZipkin 1984b propose heuristic solutions for such a problem based on a stochastic dynamicprogramming formulation. The disadvantage of their formulations lies in the very large state spaceneeded for its solution. For a serial supply chains, Shang and Song 2003 provide single periodnewsvendor problems that bound the optimal stocking levels determined by the Clark and Scarf 1960serial supply chain model. Newsvendor bounds have a number of valuable qualities; they areconsiderably less computationally intensive, allow for ready parametric analysis, and facilitate thedevelopment of intuition. In this paper, we extend the newsvendor bounds technique to distributionsystems, thus providing a simple and surprisingly accurate heuristic. Through a simulation study, weshow that our heuristic significantly outperforms other common heuristics over a wide range of parametervalues. The closed form solutions provided by the newsvendor bounds also allows us to gain insightsinto the system behavior of a distribution network that was not previously possible through alternativesolution techniques.



Operations Management -



Author: Ferguson, Mark E. - Lystad, Erik D. - -

Source: https://smartech.gatech.edu/







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