Power-of-two policies for single-warehouse multi-retailer inventory systems with order frequency discounts

This paper presents power-of-two policies for a single-warehouse multi-retailer system. In this system, discounts on the purchasing cost based on order frequency are given to the warehouse. Models with assumptions analogous to the EOQ environment are discussed for all-unit and incremental order frequency discounts. 94%-effective power-of-two policies are developed for both models. For incremental discounts, a 98%-effective power-of-two policy for a variable base planning period is also derived. For each model, a computational study shows every test problem considered has a power-of-two policy that is over 96% effective. An extension to holding costs that are dependent on the purchasing price is also provided.