Stochastic Joint Replenishment Problem in a Two-Echelon Inventory System

We examine replenishment coordination strategies for multiple item and/or multiple location inventory systems. In particular, we propose a new, parsimonious control policy for the stochastic joint replenishment problem. We first study the single location setting with multiple items under this policy. An extensive numerical study indicates that the proposed policy achieves significant cost improvements in comparison with the existing policies. The single location model also represents a two-echelon supply chain for a single item with multiple locations, where the upper echelon employs cross docking. We then extend our model to incorporate multi-location settings where the upper echelon also holds inventory. The modeling methodology based on the development of the ordering process by the lower echelon provides an analytical tool to investigate various joint replenishment policies. An extensive numerical study is conducted to determine the performance of the system and identify regions of dominance across policies. Our findings have implications for design and management of supply chains. Information: Robin Nicolai, rnicolai@few.eur.nl