Reducing Inventory Costs by Order Splitting in the Sole Sourcing Environment

Abstract

In this paper, we examine the possibility of the arrangement for multiple deliveries in each order cycle for the continuous review inventory system. The problem is mainly found in the retail sector where inventory often makes up the majority of a company's assets. Most works recently have focused on the reduction of safety stock in the multiple sourcing setting. This research, instead, considers the reduction of cycle stock in the sole sourcing environment. The formulation where a predetermined service level serves as a constraint for the objective function is employed throughout this research. We show that splitting the order into multiple deliveries can significantly reduce the inventory carrying cost especially when the interarrival times between deliveries are determined optimally.