Cost vs Profit, not always conflict

Usually when increasing cost we expect that this will decrease profit. 

But the function bewteen cost and profit may not be that simple. If we look at the cost from the point of view of investment, it is easier to see that investment will likely stimulate profit growing. The growth rate of profit may be larger than that of your investment. So the cost increase, the profit may increase even more.

-Bing Liu

Integer ratio policy

The integer ratio policy suggests that the warehouse inventory Qw should be an integer multiple of the retailer inventory Qr, Qw = nQr. The intuition behind this is that would achieve minimal inventory holding cost. But I'm curious about a mathematical proof.

- Bing Liu

stupid question about service levels

In class, we talked about two types of services. 

1. probability of not stocking out
2. probaility of demand met from stock

Conceptually, what is the difference between this two types? If no demand being involved, does it make sense to talk about stock-out or not? Is there any possibility that the demand is met from other source?

- Bing Liu

Coordinated policy

Today in the last class meeting of this course, we talked about the coordination of retailer and warehouse inventories in order to achieve overall optimality. That reminds me of a talk a short while ago about the coordination between suppliers and customers.  But that paper concludes that the overall optimal strategy benefits the supplier but may hurt the customer.  The supplier should compensate the extra cost incurred at the customer to encourage coordination.

I believe there is the same problem to multi-echlon inventory managments although this might be under the unified financial administration of the same company. The warehouse management should take actions to encourage the retailer to coordinate for a win-win strategy.

-Bing Liu