Multi-echelon Inventory Models
In the previous chapters, we dealt with the problem of inventory items stocked in one location. In this chapter, we discuss mathematical models to manage inventory items that are maintained at different stocking points (or locations). These models are referred to as multi-echelon models. These models, while being closer to reality, are mathematically quite complex, and therefore only a high-level view of this topic is presented. We start our discussions with a simple two-stage (warehouse and retailer) model with deterministic demand and derive expressions to compute the order quantities for both stages. We then extend the model to probabilistic demand to compute the order quantities assuming demand to be normally distributed.