Abstract
A centralized inventory system serves a number of stores with common ownership, and thus reliable and timely information sharing. Each of them pays a share of the inventory cost, and the reward structure leaves the owners of individual stores rewarded for their individual performance. Appropriate selection of a cost allocation method is important if such a centralized system is to last. In this work we propose three necessary criteria - stability (core of a related cooperative game), justifiability (consistency of benefits with costs), and polynomial computability. For a concrete example we demonstrate that common allocation procedures may not meet all three tests, and we present a method that that meets all three criteria. This kind of cost allocation analysis helps the common management to evaluate the trade-offs in choosing an allocation scheme for the cost of inventory centralization.
Original language | English (US) |
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Pages (from-to) | 549-561 |
Number of pages | 13 |
Journal | Naval Research Logistics |
Volume | 43 |
Issue number | 4 |
DOIs | |
State | Published - Jun 1996 |
ASJC Scopus subject areas
- Modeling and Simulation
- Ocean Engineering
- Management Science and Operations Research