DOI: 10.36347/sjebm.2015.v02i06.011

Pages: 648-658

This paper discusses a two-echelon inventory system consisting of one warehouse and two retailers. All installations use (R, Q) policy to replenish their stock. The transmission time between any two echelons follows the exponential distribution. A mathematical model is formulated to determine the optimal values of R and Q in both echelons, so the total cost is minimized. The total cost includes the average inventory cost, the average lost sales cost and the average ordering cost. Markov chain is used to model this system. The total cost function obtained is the type of a nonlinear integer programming and a genetic algorithm is proposed to solve it. Finally a numerical example is used to illustrate the performance of the model.