Almost all multi-echelon inventory models assume that demand not satisfied
immediately can be backordered. In some situations this assumption may not
be realistic. For example, it may be more representative to model stockouts
as lost sales when the retailers are in a competitive market and customers
can easily turn to another firm when purchasing the good. Assuming lost sa
les at the retailers, we consider a one warehouse several retailers invento
ry system. Using the well-known METRIC-approximation as a framework, we pre
sent a heuristic for finding cost effective base-stock policies. In a numer
ical study we find that the cost of the policies suggested by the heuristic
is on average 0.40% above the cost of the optimal (S - 1, S) policy. (C) 2
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