| Abstract: | A method is presented for calculating optimal inventory levels in a two-station transactions reporting inventory system. The criterion of optimality is the minimization of expected cost. The computational properties of the model are stressed and the solution method is precise. It is shown that when the model represents a central warehouse which supplies several retail outlets, stocks carried at the central location affect the capacity of the system to handle orders. Stocks carried at the retail level affect only the size of the retail order backlog. |
