Cost-oriented Centralized And Decentralized Inventory Policy

Stock exists in every event of the logistics flow in forms of raw materials, WIP (work-in-process), semi-manufactured goods, finished products and merchandise. In principle, every enterprise should hold stock. However, overstocking occupies part of the company's working capital, may easily cause inefficient running of the company while under stocking faces the risk of losing the opportunity of making a profit. Either situation is what the company hopes to happen. So, efforts must be made to keep the inventory at a reasonable level, which is helpful for the company to make best use of the capital, to improve the running efficiency and sale. Not only the academies pay much attention to inventory management, but the enterprises also spend a lot of resources improving inventory control.We can divide a multi-location inventory system into two, centralized versus decentralized system according to the relationship among the warehouses in the system. There is a core warehouse in a centralized system while in a decentralized system; every warehouse is the same to the whole system. Centralized control implies that attempts are made to jointly optimize the entire system. The main idea of centralized control is to reduce the demand fluctuation through demand information sharing in the whole system. When considering all customers in all markets as a whole, increase in one market may counteract decrease in another market. While in a decentralized system, each warehouse makes decision to minimize local inventory cost, which is known as local optimization. We should realize that local optimization is not bound to systematic optimization. So, it is necessary for us to study on the centralized inventory control as well as the decentralized control. To illustrate how to make choice between centralized and decentralized control, we try to do following researches:This paper first introduces the research history of centralized and decentralized inventory control.Then, we examine a multi-location, single-period inventory system. We deduce the expected cost function of the centralized and decentralized system, and quantificationally prove that the centralized system is usually better thanthe decentralized system.Also, we study the multi-location, multi-period inventory system. We try to find how to decide whether to use the centralized control and how customers should be assigned to centralized locations.DaiXiali (Transportation Planning and Management)Directed by Professor Liu Wei...