An Exact Discrete-Time Model of a Two-Echelon Inventory System with Two Customer Classes

Summary

In this paper, we analyze a two-echelon inventory system with one warehouse, one retailer and a priority customer class with direct supply from the warehouse. The customer demands are arbitrarily distributed. At both stockpoints, the inventory control is according to a reorder-point policy with periodic review and fixed replenishment order sizes. For such a system, we present a discrete-time Markov chain model to describe the inventory positions. With this model, the service levels for both customer classes can be computed. A simple priorization rule such that the priority customer class will be served first as well as a critical-level policy can be considered.