Eppen_1979 - MANAGEMENT SCIENCE VoL 25. No. S, May 1979...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
MANAGEMENT SCIENCE VoL 25. No. S, May 1979 friMutbi U.S.A. EFFECTS OF CENTRALIZATION ON EXPECTED COSTS IN A MULTI-LOCATION NEWSBOY PROBLEMf GARY D. EPPENJ This paper concems a multilocation newsboy problem with normal demand at each location and identical linear holding and penalty cost functions at each location. Consolida- tion of demand from several facilities is considered, and an expression is derived for the resulting e]q>ected holding and penalty costs as a function of the demand parameters for eadi location (means, variances, and corrdation coefficients). The expression is used to de- monstrate that (i) the expected holding and penalty costs in a decentralized system exceed those in a centralized system; (ii) the magnitude of the saving depends on the correlation of demands; and (iii) if demands are identical and uncorrelated, the costs increase as the square root of the number of consolidated demands. (FACILITIES/EQUIPMENT PLANNING; INVENTORY/PRODUCTION- OPERATING CHARACTERISTICS; INVENTORY/PRODUCTION-STOCHASTIC MODELS) A major wholesaler of steel products has 23 distribution centers scattered about the country. The firm is considering increasing the level of centralization in its inventory system. The process of centralization obviously influences a number of cost factors. This paper considers what might be called statistical economies of scale. It shows how under quite reasonable assumptions one can incorporate the usual holding and penalty costs into a model involving centralization and then examines the effects of the centralization process. The basic model considers a single-period single product model with N individual sources of demand, e.g., the distribution centers for the steel wholesaler. The problem is a multi-location newsboy problem with an opportimity for centralization. Let {, be
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/23/2011 for the course MATH 444 taught by Professor Dubey during the Spring '11 term at Amity University.

Page1 / 5

Eppen_1979 - MANAGEMENT SCIENCE VoL 25. No. S, May 1979...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online