Warehouse sizing to minimize inventory and storage costs

This paper considers a warehouse sizing problem whose objective is to minim ize the total cost of ordering, holding, and warehousing of inventory. Unli ke typical economic lot sizing models, the warehousing cost structure exami ned here is not the simple unit rate type, but rather a more realistic step function of the warehouse space to be acquired. In the cases when only one type of stock-keeping unit (SKU) is warehoused, or when multiple SKUs are warehoused, but, with separable inventory costs, closed form solutions are obtained for the optimal warehouse size. For the case of multi-SKUs with jo int inventory replenishment cost, a heuristic with a provable performance b ound of 94% is provided. (C) 2001 John Wiley & Sons, Inc.