The management of multi-echelon inventory systems has been both an important and challenging research area for many years. The rapid advance in information technology and the emphasis on integrated supply chain management have new implications for the successful operation of distribution systems. This research focuses on the study of some fundamental issues related to the operation of a multilocation inventory system with centralized information. First, we do a comparative analysis to evaluate the overall performance of individual versus centralized ordering policies for a multi-store distribution system where centralized information is available. This study integrates the existing research and clarifies one of the fundamental questions facing inventory managers today: whether or not ordering decisions should be centralized. Next, we consider a multi-store distribution system where emergency transshipments are permitted among these stores. Based on some simplifying assumptions, we develop an integrated model with a joint consideration of inventory and transshipment components. An approximately optimal (s, S) policy is obtained through a dynamic programming technique. This ordering policy is then compared with a simplified policy that assumes free and instantaneous transshipments. We also examine the relative performance of base stock policies for a centralized-ordering distribution system. Numerical studies are provided to give general guidelines for use of the policies
