Supply and Redistribution Rules for Two-Location Inventory Systems: One-Period Analysis

This paper considers a two-location stochastic inventory problem with periodic review. It is assumed that replenishment may be ordered only at times of periodic review but a provision is made for transfer of stock between the locations at predetermined times within the replenishment cycle. Problems of determining jointly optimal stockage and transfer rules according to the expected total cost criterion are investigated. Under certain regularity conditions, the optimality of a simple class of Base Stock Conserving (BSC) transfer rules is first established. The related optimal stockage rule is then characterized for the single period model of captive sales.