A simple heuristic for echelon (r, nQ, T) policies in serial supply chains

Materials are often ordered in batches at fixed time intervals in supply chains. We model such a periodic batch-ordering practice as echelon (r, nQ, T ) policies. In addition to linear holding and backorder costs, we consider two types of fixed costs, setup and order costs. The former is incurred for each batch Q ordered; the latter is associated with each reorder interval T . The objective is to minimize the average system-wide cost per period. This paper proposes a simple heuristic that generates a solution by sequentially solving a deterministic demand problem, a subproblem with fixed reorder intervals, and a subproblem with fixed batch sizes. For each of these problems, we further simplify the computation by solving a series of single-stage systems whose parameters are obtained directly from the original problem data. In a numerical study, we find that this heuristic outperforms the one proposed by Shang and Zhou (2009). We also demonstrate how this heuristic can be easily implemented by a simple rule that shares the computation between a central planner and stage managers.