Cost allocation in continuous-review inventory models

Bruce C. Hartman, Moshe Dror

Research output: Contribution to journalArticle

52 Citations (Scopus)

Abstract

A centralized inventory system serves a number of stores with common ownership, and thus reliable and timely information sharing. Each of them pays a share of the inventory cost, and the reward structure leaves the owners of individual stores rewarded for their individual performance. Appropriate selection of a cost allocation method is important if such a centralized system is to last. In this work we propose three necessary criteria - stability (core of a related cooperative game), justifiability (consistency of benefits with costs), and polynomial computability. For a concrete example we demonstrate that common allocation procedures may not meet all three tests, and we present a method that that meets all three criteria. This kind of cost allocation analysis helps the common management to evaluate the trade-offs in choosing an allocation scheme for the cost of inventory centralization.

Original languageEnglish (US)
Pages (from-to)549-561
Number of pages13
JournalNaval Research Logistics
Volume43
Issue number4
StatePublished - Jun 1996

Fingerprint

Cost Allocation
Continuous Review
Inventory Model
Costs
Cooperative Game
Computability
Inventory Systems
Information Sharing
Stability Criteria
Reward
Trade-offs
Stability criteria
Polynomial
Necessary
Evaluate
Demonstrate
Continuous review
Cost allocation
Inventory model
Polynomials

ASJC Scopus subject areas

  • Management Science and Operations Research

Cite this

Cost allocation in continuous-review inventory models. / Hartman, Bruce C.; Dror, Moshe.

In: Naval Research Logistics, Vol. 43, No. 4, 06.1996, p. 549-561.

Research output: Contribution to journalArticle

Hartman, Bruce C. ; Dror, Moshe. / Cost allocation in continuous-review inventory models. In: Naval Research Logistics. 1996 ; Vol. 43, No. 4. pp. 549-561.
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