Cost allocation in continuous-review inventory models

Bruce C. Hartman, Moshe Dror

Research output: Contribution to journalArticle

54 Scopus citations

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
DOIs
StatePublished - Jun 1996

ASJC Scopus subject areas

  • Modeling and Simulation
  • Ocean Engineering
  • Management Science and Operations Research

Fingerprint Dive into the research topics of 'Cost allocation in continuous-review inventory models'. Together they form a unique fingerprint.

  • Cite this