Cost allocation in continuous-review inventory models

✍ Scribed by Bruce C. Hartman; Moshe Dror

• Publisher: John Wiley and Sons
• Year: 1996
• Tongue: English
• Weight: 700 KB
• Volume: 43
• Category: Article
• ISSN: 0894-069X
• DOI: 10.1002/(sici)1520-6750(199606)43:4<549::aid-nav7>3.0.co;2-7

✦ Synopsis

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.