Applying the Modified Base Stock Policy in a Two–echelon Inventory System Including Stockroom and Retailers

Abstract

In base stock policy, a new order is done immediately when a sale occurs. However, in modified base stock policy, doing a new order is delayed. In this paper, for the first time a two-echelon inventory system is studied which consists of one central storeroom and a number of identical, independent retailers which apply continuous review and modified base stock policy by imposing delay between placement of successive orders. Unsatisfied demands are backordered at the warehouse while become lost at the retailers. The performance of modified base stock policy is evaluated through simulation and its total cost is compared with that of standard base stock policy. Simulation show that in modified policy, while the delays before the new orders are the same, the total cost reduces much.