EVALUATING ECHELON STOCK (R,NQ) POLICIES IN SERIAL PRODUCTION INVENTORY SYSTEMS WITH STOCHASTIC DEMAND

This paper studies echelon stock (R, nQ) policies in serial production /inventory systems with stochastic demand. We provide a recursive proc edure to compute the steady state echelon inventory levels of the syst ems, which can be used to evaluate the long-run average holding and ba ckorder costs as well as other performance measures. The procedure is based upon an observation of a relationship between the inventory stat us of adjacent stages in a serial system. We also derive exact formula s for replenishment frequencies and setup costs. Our results apply to both continuous-review systems with compound Poisson demand and period ic-review systems with independent, identically distributed demands. A preliminary numerical study was conducted to explore the cost effecti veness of echelon stock (R, nQ) policies. For two-stage systems with s imple Poisson demand, we compared among the minimum costs of echelon s tock (R, nQ) policies, a lower bound on the minimum achievable costs, and the minimum costs of installation stock (R, nQ) policies. Finally, we present a modification of an existing approximate evaluation proce dure.