Cost Allocation for Joint Replenishment Models

  • Authors:
  • Jiawei Zhang

  • Affiliations:
  • Department of Information, Operations, and Management Sciences, Stern School of Business, New York University, New York, New York 10012

  • Venue:
  • Operations Research
  • Year:
  • 2009

Quantified Score

Hi-index 0.00

Visualization

Abstract

We consider the one-warehouse multiple retailer inventory model with a submodular joint setup cost function. The objective of this model is to determine an inventory replenishment policy that minimizes the long-run average system cost over an infinite time horizon. Although the optimal policy for this problem is still unknown, a class of easy-to-implement power-of-two policies are 98% effective. This paper focuses on how the cost, under an optimal power-of-two policy, should be allocated to the retailers. This question generates an interesting cooperative game. We prove that this cooperative game has a nonempty core. The key to our result is a strong duality theorem for the one-warehouse multiple retailer problem under power-of-two policies.