Title: Decentralised and centralised control of a two-stage distribution system

Authors: Qiu Minmin, Zhao Xiaobo

Addresses: Department of Industrial Engineering, Tsinghua University, Beijing 100084, China. ' Department of Industrial Engineering, Tsinghua University, Beijing 100084, China

Abstract: This paper analyses the inventory costs of a two-stage distribution system consisting of one warehouse and multiple retailers. When the distribution system is decentralised, we model the decision problem of each player into a Markov decision process by introducing an order-delivery rate matrix. An iterative algorithm is developed to obtain the system equilibrium. When the system is centralised, we directly model the decision problem into a Markov decision process. A numerical example shows that the cost of the centralised distribution system is about 40% lower than the cost of the decentralised system. Furthermore, some properties of the costs are numerically observed.

Keywords: distribution systems; centralised control; inventory costs; ordering policy; Markov decision process.

DOI: 10.1504/IJSOI.2006.010190

International Journal of Services Operations and Informatics, 2006 Vol.1 No.1/2, pp.67 - 77

Published online: 08 Jul 2006 *

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