OWNR problem with variable replenishment and inventory holding costs and quantity discounts

Abstract

We consider an inventory/distribution system consisting of one warehouse and N retailers (OWNR). Warehouse replenishes its orders from external supplier and supplies all orders of retailers. The objective of this paper is to maximise supply chain benefits of the whole system. To achieve this objective SENYIGIT and AKKAN’s heuristic algorithm is used. We assume that demand is constant and deterministic; shortages are not allowed and lead times are negligible. Total system cost consists of order-quantity-dependent replenishment and inventory holding cost parameters, and quantity discounts are applicable. The main idea of new heuristic is to compare replenishment and inventory holding costs while manipulating the order quantity by order intervals of locations. While balance condition is searched by new version of SENYIGIT and AKKAN’s heuristic algorithm, quantity discounts and replenishment costs will reduce costs of whole systems. Capital limit constraint is also included to the model of objective function. The algorithm is developed for quantity discounts and 100 datasets randomly generated for the system that contains five retailers and the solutions were obtained by developed heuristic.

Keywords: Supply chain management, two echelon inventory systems, integer-ratio policies, quantity discounts, heuristic method, variable cost parameters.