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Dynamic routing and inventory allocation in a one -warehouse N-retailer distribution system

Purdue University
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  • Business Administration
  • Management|Operations Research
  • Computer Science


In this thesis, we model a dynamic delivery-routing and allocation problem in a one-warehouse N-retailer distribution system operating in a periodic-review mode to study the cost-reduction effect of dynamic routing. We first prove that the optimal routing policy in a one-warehouse N-retailer "symmetric" system is to go to the retailer with the least inventory first (LIF). We formulate the finite horizon as a dynamic-programming problem and show that under the "allocation assumption", myopic allocation is optimal. The myopic allocation problem is not easy to solve even in the two-retailer case. Several important properties of the optimal myopic allocation for the two-retailer case, including the first-order optimality condition, are presented. Through a numerical study, we show that the benefit of using dynamic routing is significant in the "medium-to-large" demand variance cases. Also, some heuristics for allocation are shown to be very efficient. We also show the universality of the first-order optimality condition of the system-replenishment problem in the two-retailer case. A numerical study suggests that using the optimal system-replenishment policy for the fixed-route case is a good heuristic. ^

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