Holding Costs Minimization with Service Level Constraints in an Arborescent Distribution Network

A two-stage arborescent distribution network is considered in which final demand occurs merely at the finished goods level and inventory may be stored at either level. The system components are controlled by the well-known order-up-to-level policy. A constraint holding costs minimization problem is analyzed for determining the optimal amounts to stock at each node of the given network with customer service levels to be simultaneously ensured. The optimization model allows furthermore for different control intervals at the retailer level. Numerical results show that the analyzed optimization procedure produces high-quality policies with low computational effort.