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Decentralized Warehouse Case Study

778 Words4 Pages

1.1. Background
The control and maintenance of inventories of physical goods is a problem which is common to every organization. For example, inventories must be maintained in automobile industry, FMCG sector, all manufacturing industries maintain inventories in form of raw material, work in progress inventories or finished product inventories. Value of inventories runs in thousands of crore for various industries like HUL balance sheet of fiscal year 2012-13 reports an inventory of 2.5 thousand crore. The reason for this can be physical impossibility or economical difficulties in having the goods transported in a system precisely when demand occurs. Without inventories shop floor in a manufacturing unit or customers for goods will have to …show more content…

Every organization in order to reduce its logistics cost wants to effectively manages its inventories cost which can include ordering cost, inventory carrying cost etc. and to do so effectively they should first solve a fundamental question i.e. whether to have one big centralized warehouse or to have several decentralized …show more content…

• All decentralized warehouse have same normal demand distribution with mean 150 and standard deviation 10.
• Centralized warehouse has normal demand with N(750, 50)
• Compare annual cost in both cases using transaction processing model considering ordering cost, carrying cost and backorder cost.

2. Literature Review

Various researchers have used different models and assumption to compare centralized and decentralized inventory control model. Some researchers like Nazmul ehsan et al have considered 2- level inventory control system with continuous review model to compare the total cost for centralized as well as decentralized warehouse case. Chen Zhiya et. Al have that centralized inventory management reduces the cost by considerable value. Backorder cost is also a major hindrance for organizations due to which they face loss of sales and hence loss of profits.

3. Method
3.1. Research Design
• Heuristic Approximate Treatment of the Backorders Case was considered.
A number of assumptions and approximation should be made for the simplification of annual cost calculation. Various assumptions made

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