Omega 102 (2021) 102356

Contents lists available at ScienceDirect

Omega
journal homepage: www.elsevier.com/locate/omega

Inventory replenishment planning of a distribution system with

storage capacity constraints and multi-channel order fulfilment ✩
B. Dai a,b, H.X. Chen b,∗, Y.A. Li c, Y.D. Zhang c, X.Q. Wang c, Y.M. Deng c
a
School of Management, Hunan University of Technology and Business, Changsha, China
b
Industrial Systems Optimization Laboratory, Charles Delaunay Institute, University of Technology of Troyes, Troyes, France
c
Alibaba Supply Chain Platform (ASCP), Alibaba (China) Co., Ltd, Hangzhou, China

a r t i c l e i n f o a b s t r a c t

Article history: In this paper, an inventory replenishment planning problem in a two-echelon distribution system of Al-
Received 3 August 2019 ibaba with a central distribution centre (CDC) and multiple front distribution centers (FDCs) is studied.
Accepted 26 October 2020
In the system, the CDC replenishes its inventories of multiple products from external suppliers, while
Available online 2 November 2020
each FDC replenishes its inventories of the products from the CDC. These products are jointly replen-
Keywords: ished at each stock. This problem arises when Alibaba prepares its annual “double 11” promotion. Facing
Inventory management stochastic demands of the products in the promotion period, the objective of the problem is to optimally
Distribution systems determine the inventory replenishment quantities of the products for each stock before the promotion
Multi-channel order fulfilment so that the expected total profit of the system is maximized, subject to the storage capacity constraint
Optimization of each stock. During the promotion, customer orders may be fulfilled through multiple channels, that is,
E-commerce a customer order may be fulfilled by its local FDC, other FDCs, or the CDC. This stochastic optimization
problem is formulated as a convex nonlinear programming model and solved optimally by a piecewise
linear approximation approach. The effectiveness of the model and the approach is demonstrated by nu-
merical experiments on instances generated based on data of Alibaba. The results show that our model
can lead to a significantly higher expected total profit compared with a deterministic planning model.
© 2020 Elsevier Ltd. All rights reserved.

1. Introduction time delivery to customer orders in such a promotion with huge

E-commerce has emerged as a major means for selling and
buying products in recent years. To increase market shares, e-
commerce companies have to deliver goods to customers more
quickly at lower costs. This requires effective inventory manage-
ment in their distribution systems. As one of e-commerce giants
in the world, Alibaba is trying to improve its inventory manage-
ment in order to obtain competitive edges over other e-commerce
companies.
To increase the sales and visibility of its on-line e-commerce
marketplaces Taobao.com and Tmall.com, Alibaba has performed
a huge promotion on November 11th every year since 2009. This
well-known annual promotion is called ‘double 11 promotion’ in
China. In 2018, the transaction volume of Alibaba in ‘double 11
promotion’ reached 213.5 billion RMB. To ensure a high rate of on-
✩ problem arising from the annual “double 11” promotion of Alibaba.
Area: Supply Chain Management, Business Analytics Applications. This
manuscript was processed by Associate Editor Akcay.
∗
Corresponding author.
E-mail addresses: dr_bo_dai@163.com (B. Dai), haoxun.chen@utt.fr (H.X.
Chen), yuan.lya@alibaba-inc.com (Y.A. Li), tanfu.zyd@alibaba-inc.com (Y.D. Zhang),
robin.wxq@alibaba-inc.com (X.Q. Wang), yuming.dym@alibaba-inc.com (Y.M. Deng).
demands, Alibaba adopted an “early product pushing down” re-
plenishment strategy, where the inventories of fast-moving and
best seller products were largely replenished at the ending stocks
(front distribution centres) of its multi-echelon distribution system
in advance for the sales of the promotion period. The inventory re-
plenishment in this distribution system and its order fulfilment has
two important features: multiple products are jointly replenished
at each stock and customer orders may be fulfilled through mul-
tiple channels. Here, multi-channel order fulfilment means that a
customer order may be fulfilled by its local FDC, other FDCs, or the
CDC. Current inventory replenishment planning of Alibaba for the
double 11 promotion is made by applying a deterministic planning
approach based on demand forecast similar to that of conventional
Distribution Requirements Planning [22] without explicit consider-
ation of demand uncertainty.
In this paper, we study an inventory replenishment planning
This problem occurs in a two-echelon distribution system of Al-
ibaba with a central distribution centre (CDC) and multiple front
distribution centers (FDCs), where the CDC replenishes its inven-
tories of multiple products from external suppliers and each FDC
replenishes its inventories of the products from the CDC. In the

https://doi.org/10.1016/j.omega.2020.102356
0305-0483/© 2020 Elsevier Ltd. All rights reserved.
B. Dai, H.X. Chen, Y.A. Li et al.
system, the storage space of each FDC is limited. Rather than only
considering deterministic demands obtained by demand forecast-
ing, we explicitly consider stochastic demands. Facing demand un-
certainty in the promotion period, the objective of the problem
is to optimally determine the inventory replenishment quantities
of the products for each stock before the promotion so that the
expected total profit of the system is maximized, subject to the
storage capacity constraint of each stock. Here, the expected total
profit of the system is defined as its sales gross profit minus its lo-
gistics costs, where the sales gross profit is the difference between
the sales revenue and the sales costs excluding logistics costs, and
the logistics costs consist of transportation costs, inventory hold-
ing costs, and shortage costs. Since the inventory replenishment
for the double 11 promotion is made in advance and only for sales
in the promotion period, the replenishment lead time can be ne-
glected. Consequently, the pre-promotion inventory replenishment
problem can be treated as a single-period planning problem.
Previous studies related to our work include deterministic dis-
tribution planning models, stochastic distribution planning mod-
els, single-period inventory planning models, and inventory models
with multi-channel order fulfilment. A stochastic planning model
and a deterministic planning model for inventory management of
supply chains including distribution systems were compared in De
Kok and Fransoo [8].
Distribution Requirements Planning (DRP) is a determinis-
tic planning approach based on demand forecasts. Wang et al.
[22] proposed a just-in-time DRP system to pull materials through
a supply chain effectively, where multiple warehouses and mul-
tiple retailers are involved. Their model minimizes the total cost
of manufacturing, transportation, and earliness/tardiness penalty
for meeting all retailers’ requirements with limited warehouse ca-
pacities. This model can be transferred into a linear program-
ming problem and solved by the simplex algorithm. Ivanov et al.
[15] studied a multi-period and multi-commodity distribution
planning problem for a multi-stage supply chain with deterministic
and dynamic demand. A linear programming (LP) model is formu-
lated for the problem and transformed into a maximum flow prob-
lem by excluding demand constraints from the LP model. Qiu et al.
[19] studied a production-inventory-routing problem with perish-
able products and presented a branch-and-cut algorithm for solv-
ing its MIP model. Different from these works, we study an in-
ventory replenishment planning problem with stochastic demands
rather than deterministic demands. According to Guastaroba et al.
[11] and Alnaggar et al. [2], considering uncertainty in distribution
planning for distribution networks with intermediate facilities re-
ceived very little attention in the literature.
Stochastic distribution planning is based on a stochastic model.
For a multi-echelon distribution system, most papers investigated
inventory management of so-called one-warehouse multi-retailers
systems with only one product involved [9]. For a general N-
echelon distribution system that delivers goods to customers di-
rectly or via cross-docking centers, Verrijdt and Kok [20] studied a
periodic review inventory policy for the system without batch size
and capacity constraint. It is assumed that only final stocks (stocks
at the lowest echelon) in the system hold inventory, whereas in-
termediate stocks are pure distribution centers that allocate in-
coming goods immediately to downstream stocks. They applied a
service level approach which aims to achieve predetermined tar-
get service levels for the final stocks. In their study, the inter-
mediate stocks can be interpreted as cross-docking centers. The
same authors proposed two adjusted methods which can be used
to improve the service performance considerably in certain situ-
ations [21]. Kılıç and Tuzkaya [17] considered a two-echelon dis-
tribution network with distribution centers and wholesalers and
proposed a two-stage stochastic mixed integer programming ap-
proach with the first stage selecting the location of each distri-
2
Omega 102 (2021) 102356
bution centre and the second stage determining the transportation
and inventory decisions. Alnaggar et al. [2] considered a distribu-
tion planning problem in which multiple suppliers deliver goods
to multiple customers with stochastic demands via an intermedi-
date consolidation centre. They formulated a two-stage stochas-
tic programming model with recourse for the problem and ap-
plied sample average approximation to solve the problem. There
are also papers studying inventory repenishment planning in se-
rial and assembly systems. For example, Fattahi et al. [10] studied
a multi-period inventory system with one retailer and one man-
ufacturer and proposed mixed-integer linear programming (MILP)
models based on two-stage stochastic programming and scenario
approximation. Avci and Selim [3] studied a three echelon con-
vergent inventory system with a customer, a manufacturer and a
number of suppliers and proposed a decomposition-based multi-
objective differential evolution algorithm to minimize total hold-
ing cost, inbound and outbound premium freight ratios simulta-
neously. Different from all previously reviewed papers, we study
inventory replenishment in a distribution system, where multiple
products are involved rather than a single product, and all stocks
are allowed to hold inventory. Moreover, we consider order fulfil-
ment via transhipment and adopt a profit maximization approach
rather than a service level approach.
Since our inventory replenishment planning model is a single
period model, we also review previous studies on single period in-
ventory models. Chung et al. [7] considered a single-period and
single-product inventory placement problem for an N-stage sup-
ply chain facing a stochastic demand with the objective of maxi-
mizing an expected profit. Inventory replenishment decisions are
made before the occurrence of demand. The sales gross profit, sal-
vage value, ordering, shipping, processing, and lost sales costs are
linear and fixed costs at each stage are considered. They devel-
oped an effective branch and bound algorithm for the problem. Qin
et al. [18] reviewed different variants of news-vendor models with
different features of customer demand, supplier costs, and buyer’s
risk profile. Later, Chung et al. [6] studied the same problem with
the objective of maximizing the probability of achieving a target
profit level. They proved the existence of optimal inventory deci-
sions with at most three stages holding inventory. They proposed
an O(N3 ) algorithm for the problem. The well known news-vendor
model is also a single-period inventory planning model [16, 23],
whose objective is to find the order quantity which maximizes
the expected profit of a single stock over a single period facing
a stochastic demand. Herbon [12] studied a continuous-review in-
ventory model with Poisson demand and lost sales and controlled
by the (Q, r) policy. He proposed an algorithm with polynomial-
time complexity to search for the optimal paramters of the policy.
The performance of the proposed model was compared with that
of an adjusted newsvendor model. We also formulate our inven-
tory replenishment planning problem as a single period model but
we consider a much more complex two-echelon distribution sys-
tem rather than a single stock.
There are also few papers studying multi-period models for in-
ventory management and replenishment planning. However, most
of the models deal with a single stock. Zhang et al. [24] proposed
some convex stochastic programming models for multi-period in-
ventory control problems with stochastic demand of a seasonal
fashion product. Their models minimize expected losses subject to
risk aversion constraints. A sample average approximation method
was used to solve the models.
In addition, multi-channel order fulfilment was usually studied
in multi-channel retailing, where the sales of products are realized
through more than one channel. These channels may include phys-
ical stores, e-commerce stores, and online marketplaces. Agatz
et al. [1] provided an overview of planning tasks and quantitative
models for e-fulfillment in a multi-channel retailing environment.
B. Dai, H.X. Chen, Y.A. Li et al.
According to this overview, some inventory management issues
for e-fulfillment can be addressed by inventory rationing models.
Most of those models consider two customer segments with differ-
ent profit margins and different service time requirements. Hüb-
ner et al. [13] also provided an overview of operations manage-
ment issues in multi-channel retailing. According to their overview,
studies on inventory management in multi-channel retailing were
mainly focused on inventory polices, allocation policies, and inven-
tory pooling effects. Bailey and Rabinovich [4] proposed an inven-
tory model for an internet book retailer who serves demand ei-
ther from its own inventory or by drop-shipping. They developed
analytic expressions for the optimal order quantities of two fulfill-
ment options under fixed plus linear cycle costs and showed that it
might make sense to use both fulfillment options simultaneously.
Ishfaq and Bajwa [14] developed a non-linear mixed-integer profit
maximization model for online order fulfillment of multi-channel
retailers, where an online order can be fulfilled by a distribution
centre, a direct-to-customer fulfillment centre, a vendor facility, or
a retail store. However, the customer demand (online orders) in the
model is represented by a price-dependant, linear and determinis-
tic function. Our study is different from the above mentioned stud-
ies on inventory management for multi-channel order fulfilment in
four aspects. Firstly, we consider three fulfilment options including
order fulfilment via transshipment which was never considered in
those studies. Secondly, we consider multiple products with stor-
age space limitation at each FDC rather than a single product with-
out storage space limitation. Thirdly, we consider both inventory
replenishment planning before a promotion and order fulfilment
during the promotion. Finally, compared with the work of Ishfaq
and Bajwa [14], although we also propose a non-linear profit max-
imization model, the customer demands in the distribution system
we study are stochastic rather than deterministic.
To the best of our knowledge, no paper has studied the problem
we study. For this new problem, we propose a novel mathematical
programming model with nonlinear objective function and an ef-
ficient piecewise linear approximation method to optimally solve
it. Numerical experiments on instances generated based on data of
Alibaba show that the model can lead to a significantly higher ex-
pected profit compared with a deterministic planning model.
The rest of this paper is organized as follows. Section 2 de-
scribes the studied distribution system and its inventory replen-
ishment planning problem. Section 3 proposes a convex nonlin-
ear programming model for the problem. Section 4 presents a
piecewise linearization approximation approach for optimally solv-
ing the model. Section 5 discusses the performance evaluation
of the model by comparing it with its deterministic counterpart.
Section 6 evaluates the performance of the model by numeri-
cal experiments on instances generated based on data of Alibaba.
Section 7 concludes this paper with remarks for future research.
2. The inventory replenishment planning problem
We consider a two-echelon distribution system of Alibaba with
one CDC (Central Distribution centre) and multiple FDCs (Front
Distribution Centers) as shown in Fig. 1. This system is operated
in an e-commerce environment, where each stock holds multiple
fast moving products. The demand of each product at each FDC in
the promotion period is stochastic subject to a known distribution.
However, our model proposed below can also be applied to the
case where the demand is subject to another probability distribu-
tion.
In the system, multiple products are jointly replenished at each
stock. The inventories of the products at the CDC are supplied by
external suppliers, while the inventories of each FDC are jointly re-
plenished from the CDC. Each FDC serves customer orders directly.
However, each customer order can be fulfilled from its local FDC,
3
Omega 102 (2021) 102356
Fig. 1. A two-echelon distribution system with one CDC and multiple FDCs.
other FDCs via transhipment, or the CDC. That is, customer order
fulfilment has three channels. To reduce order fulfilment costs, the
distribution system tries to fulfil each customer order by its local
FDC first, then by other FDCs via transhipment, and finally by the
CDC. In addition, each FDC has a limited storage space as it is lo-
cated in an urban area, so the storage capacity constraint of each
FDC must be considered.
We consider the inventory replenishment planning of the dis-
tribution system for the sales in the annual “double 11” promotion
period. As this inventory replenishment is made in advance before
the promotion period, its planning problem can be approximately
formulated as a single-period inventory replenishment planning
problem with zero lead time for the inventory replenishment of
each stock in the system. In the following, this inventory replen-
ishment is referred to as pre-promotion inventory replenishment.
Before the promotion, each stock holds a certain amount of
on-hand inventory of each product. During the pre-promotion in-
ventory replenishment, multiple products are jointly replenished
at each stock. During the promotion, customers place orders to
buy the products, and each order may be fulfilled by its local
FDC, other FDCs, or the CDC with the priority from the highest
to the lowest. In case all FDCs and the CDC run out of stock for
a product ordered by customers, lost sales for the product occur.
At the end of the promotion period, holding costs and lost sales
costs are charged in addition to order fulfilment costs and ship-
ping (transportation) costs of the pre-promotion inventory replen-
ishment, where the shipping cost of each replenishment depends
on the volume (in m3 ) of the products replenished and the ship-
ping distance. The sales gross profit of each product in promotion,
holding cost of each product per unit in the promotion period at
each stock, lost sales cost of each product per unit, and order ful-
filment cost of each order fulfilled by each channel, and shipping
cost per m3 and per km are given. The objective of the inventory
replenishment planning problem is to maximize the expected total
profit of the distribution system gained in the promotion. This de-
cision problem can be formulated as a convex nonlinear program-
ming model to be presented in the next section.
3. Mathematical model
In this section, we propose a nonlinear programming model
for the studied stochastic optimization problem. Before formulat-
ing the model, we first introduce the following notations.
3.1. Sets and indices
NFDC : set of all FDCs in the distribution system, NFDC ={1, 2, …,
n}, where n is the number of FDCs.
N: set of all stocks in the distribution system, N = {0}∪NFDC ,
where 0 denotes the CDC.
K: set of all products in the distribution system.
i,j: stock index, i,j ∈ N.
k: product index, k ∈ K.
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

3.2. Parameters If part of demand dik cannot be fulfilled locally, it will be par-
tially or totally fulfilled by other FDCs and the CDC. Since f ck1 ≤ f ck0 ,
0 : initial on-hand inventory of product k at stock i at the be-
Iik if a customer order cannot be fulfilled locally, it will be first ful-
ginning of the pre-promotion inventory replenishment, i ∈ N, k ∈ filled by other FDCs if possible and then by the CDC.
K. Therefore, the order fulfilment quantity of product k by
 
dik : demand of product k at FDC i in the promotion period, i ∈ the CDC is given by min(I0k , max( i∈N dik − i∈N Iik ,0 )),
  F DC F DC
NFDC , k ∈ K. dik , i ∈ NFDC are independent for any product k ∈ K. where i∈NF DC dik and i∈NF DC Iik , are all FDCs’ total de-
μik , σik : mean value and standard deviation of the demand of mand and total on-hand inventory of product k, respec-
 
product k at FDC i in the promotion period, i ∈ NFDC , k ∈ K. tively, max( i∈N dik − i∈N Iik ,0 ) is the amount of the
F DC F DC
fik (x ),Fik (x ): probability density function and distribution func- total demand of product k that cannot be fulfilled by all FDCs.
tion of dik , i ∈ NFDC , k ∈ K. From this unfulfilled amount, we can derive that the amount
dk : total demand of product k observed by all FDCs in the pro- of the total demand of product k that can be fulfilled by all
   
motion period, dk = i∈SF dik , k ∈ K. FDCs is given by i∈N dik − max( i∈N dik − i∈N Iik , 0 ). Con-
F DC F DC F DC
μk ,σk : mean value and standard deviation of dk , μk = sequently, the order fulfilment quantity of product k by other

   
FDCs is given by i∈N dik − max( i∈N dik − i∈N Iik , 0 ) −
i∈SF μik , σk = i∈SF σik , k ∈ K.
2
 F DC  F DC F DC
i∈NF DC min (Iik , dik ), where i∈NF DC min (Iik , dik ) is the amount of
fk0 (x ), Fk0 (x ): probability density function and distribution func- the total demand of product k fulfilled locally.
tion of dk , k ∈ K. Next, we formulate the on-hand inventory and lost sales of each
pk : Sales gross profit of product k, which is the difference be- stock at the end of the promotion period.
tween the sales revenue and the sales costs (excluding logistics Since the holding cost hck of each product k is assumed the
costs) for each unit of the product sold, k ∈ K. same for all FDC, we only need to consider all FDCs’ total on-
hck0 : holding cost of product k per unit at the CDC in the pro- hand inventory of product k after order fulfilment for calculating
motion period, k ∈ K. their total inventory holding cost of the product. This total on-hand
hck : holding cost of product k per unit at each FDC in the pro-   
inventory is given by
  i∈NF DC Iik − min ( i∈NF DC dik , i∈NF DC Iik ) =
motion period, k ∈ K. It is assumed that this unit holding cost is max( i∈N Iik − i∈N dik , 0 ). The on-hand inventory of prod-
F DC F DC
the same for all FDCs and hck > hck0 for any k. uct k at the CDC after order fulfilment is thus given by I0k −
lsk : lost sales cost of product k per unit, k ∈ K.  
min(I0k , max( i∈N dik − i∈N Iik ,0 )).
F DC F DC
sci : shipping (transportation) cost per unit of volume (m3 ) for The lost sales quantity of product k after order ful-
 
the inventory replenishment of stock i from its supplier, i ∈ N. filment is given by max( i∈N dik − i∈N Iik , 0 ) −
  F DC F DC
f ck0 : order fulfilment cost of product k for each unit fulfilled by min(I0k , max( i∈N dik − i∈N Iik ,0 )), where the first term
F DC F DC
the CDC, k ∈ K. is the amount of the total demand of product k that cannot be
f ck1 : order fulfilment cost of product k for each unit fulfilled by fulfilled by all FDCs, and the second term is the amount of the
other FDCs, k ∈ K. It is assumed that the cost for fulfilling a cus- total demand of product k fulfilled by the CDC.
tomer order by another FDC does not depend on the FDC involved. Finally, the sales quantity (the total quantity of all ful-
f ck1 can reasonably approximate the real order fulfilment cost if filled orders) of product k is given by its total demand minus
  
it is interpreted as the average order fulfilment cost of product k its lost sales, i.e., i∈NF DC d − max( i∈N dik − i∈N Iik , 0 ) +
  ik F DC F DC
by other FDCs via transhipment. This assumption is introduced for min(I0k , max( i∈N dik − i∈N Iik ,0 )).
F DC F DC
simplifying the mathematical formulation of the problem, because The objective function of the model is the distribution system’s
if the cost is FDC-dependant, the mathematical model of this prob- expected total profit (ETP), which is defined as the sales gross
lem will involve multi-dimensional (multivariate) probablity den- profit of all products minus the logistics costs composed of in-
sity functions which are difficult to deal with. Moreover, we as- ventory holding costs, lost sales costs, order fulfilment costs, and
sume f ck1 < f ck0 for any product k. shipping (transportation) costs for inventory replenishment. From
v pk : volume of product k per unit (in m3 ), k ∈ K. the above derivations, we can formulate ETP as:
CiS : storage capacity of FDC i (in m3 ), i ∈ NFDC .    
   
CiR : maximum joint replenishment volume of stock i from its ET P = E pk · dik − max dik − Iik , 0
supplier (in m3 ), i ∈ N. k∈K i∈NF DC i∈NF DC i∈NF DC
α : expected service level for each product at each FDC.   
 
zα : z-value corresponding to the service level α . + min I0k , max dik − Iik ,0
i∈NF DC i∈NF DC
3.3. Decision variables    
  
qik : inventory replenishment quantity of product k for stock i. − hck0 · I0k − min I0k , max dik − Iik ,0
k∈K i∈NF DC i∈NF DC
3.4. Other variables  
  
− hck · max Iik − dik , 0
Iik : on-hand inventory of product k at stock i after the pre-
k∈K i∈NF DC i∈NF DC
promotion inventory replenishment.   
With the above notations, we first formulate the quantities ful-   
filled by the local FDC, other FDCs, and the CDC for the demand of − lsk · max dik − Iik , 0
k∈K i∈NF DC i∈NF DC
each product k observed by each FDC i during the promotion pe-   
riod and the inventory level of each stock at the end of the period.  
Obviously, for dik , the demand of product k observed by FDC − min I0k , max dik − Iik ,0
i, the amount of dik that can be fulfilled locally by the FDC dur- i∈NF DC i∈NF DC
ing the promotion period is given bymin(Iik , dik ), where Iik is the
  
  
on-hand inventory of product k at FDC i at the beginning of the − f ck0 · min I0k , max dik − Iik ,0
period. k∈K i∈NF DC i∈NF DC

4
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

  
    piecewise linear approximation of its objective function. In the fol-
− f ck1 · dik − max dik − Iik , 0 lowing, we first prove the concavity of the objective function, then
k∈K i∈NF DC i∈NF DC i∈NF DC introduce a piecewise linearized model of SIRP and its properties,
  and finally present a piecewise linear approximation approach for
 
− min (Iik , dik ) − v pk · qik · sci (1) solving SIRP. The proofs of all propositions in this section can be
i∈NF DC i∈N k∈K
found in Appendix A2.
After a mathematical transformation, the objective function (2)
The expected total profit can be rewritten as Eq. (2) (see can be rewritten as follows (see Appendix A1 - Transformation of
Appendix A1 - Transformation of Eq. (1) into (2)): Eq. (2) into (9)):
     
ET P = ( pk + hck − f ck1 ) · μik − ( pk + hck + l sk − f ck1 ) ET P = ( pk + hck − f ck1 ) · μik − (hck − hck0 + f ck0 − f ck1 )
k∈K i∈NF DC k∈K k∈K i∈NF DC k∈K
+∞  +∞ 
· 
(x − ) (x )dx
Iik fk0 · (x − Iik ) fk0 (x )dx

i∈NF DC Iik i∈NF DC i∈NF DC Iik i∈NF DC
 +∞ 
+ ( pk + hck0 + l sk − f ck0 ) · I0k fk0 (x )dx − ( pk + hck0 + l sk − f ck0 )

Iik +I0k k∈K
k∈K i∈NF DC


 +∞ 
i∈NF DC Iik +I0k  · 
(x − Iik − I0k ) fk0 (x )dx
+ 
(x − ) (x )dx
Iik fk0 i∈NF DC Iik +I0k i∈NF DC
i∈NF DC Iik i∈NF DC  
   
   − hck0 · I0k + hck Iik
− hck0 · I0k + hck Iik + f ck1 k∈K i∈NF DC
k∈K i∈NF DC k∈K
  +∞ Iik
 +∞ Iik + f ck1 · Iik fik (x )dx + x fik (x )dx
· Iik fik (x )dx + x fik (x )dx k∈K i∈NF DC
Iik 0
i∈NF DC
Iik 0 
 − v pk · qik · sci (9)
− v pk · qik · sci (2) i∈N k∈K
i∈N k∈K +∞
Define G0k ( y ) = y (x − y ) fk0 (x )dx, Gik (y ) =
Thus, the stochastic inventory replenishment planning problem +∞ y
−( y y fik (x )dx + x fik (x )dx), i ∈ NF DC . The objective func-
0
of the two-echelon distribution system can be formulated as the
tion can be rewritten as Eq. (10).
following nonlinear programming model SIRP.
 
SIRP:
ET P = ( pk + hck − f ck1 ) · μik
k∈K i∈NF DC
Max ETP
 
subject to − (hck − hck0 + f ck0 − f ck1 ) · G0k ( Iik )
0 k∈K i∈NF DC
Iik = Iik + qik , i ∈ NF DC , k ∈ K (3)
  
I0k = I00k + q0k − qik , k ∈ K (4) − ( pk + hck0 + l sk − f ck0 ) · G0k ( Iik + I0k )
i∈NF DC k∈K i∈NF DC
  
vk · Iik ≤ CiS , i ∈ NF DC (5)    
− hck0 · I0k + hck Iik − f ck1 · Gik (Iik )
k∈K
 k∈K i∈NF DC k∈K i∈NF DC
vk · qik ≤ CiR , i ∈ N (6) 
k∈K
− v pk · qik · sci (10)
i∈N k∈K
Iik , qik ≥ 0, i ∈ N, k ∈ K (7)
Proposition 1. If hck − hck0 + f ck0 − f ck1 > 0 and pk + hck0 + l sk − f ck0
where constraints (3) and (4) are inventory balance equations for > 0 for any product k, the objective function ETP is strictly concave
all FDCs and the CDC respectively, constraints (5) are storage ca- with respect to its variables.
pacity constraints of the FDCs, and constraints (6) are transporta- Note that hck − hck0 + f ck0 − f ck1 > 0 is derived directly from
tion capacity constraints for the replenishments of all stocks.
hck > hck0 and f ck1 < f ck0 . The assumption pk + hck0 + l sk − f ck0 > 0
In addition to profit maximization, if the distribution system
is also reasonable, because if pk + hck0 + l sk − f ck0 ≤ 0, we have
wants to achieve a given service level α for each product at each
FDC during the promotion period, then the following constraints f ck0 ≥ pk + hck0 + l sk > pk + l sk . In this case, it is more profitable
(8) must be added. to let an order of product k lost rather than fulfilling the or-
der from the CDC. In the following, we assume the conditions in
Iik ≥ μik + zα · σik , i ∈ NF DC , k ∈ K (8) Proposition 1 hold.
According to Property 1, SIRP is a linear constrained concave
4. Resolution of the model by piecewise linear approximation maximization problem which can be solved by piecewise linear ap-
proximation of its objective function
Because model SIRP is a nonlinear programing model with a  
Let u0k = G0k ( i∈N Iik ), i∈NF DC Iik ∈Fk DC , v0k =
nonlinear integral objective function, we cannot solve it directly   F DC
G0k ( i∈N Iik + I0k ), i∈N Iik
+ I0k
∈  N , andw = G (I ),
k ik ik ik
by using a commercial MILP solver like that of CPLEX. Fortunately, F DC F DC

we can prove that the objective function is strictly concave under Iik ∈ FikDC , i ∈ NF DC , where set Fk DC is a set of considered values
 
the assumption hck − hck0 + f ck0 − f ck1 > 0 and pk + hck0 + l sk − f ck0 of i∈N Iik , N
k
is a set of considered values of i∈N Iik + I0k ,
F DC F DC
> 0 for each product k, so we can optimally solve the model by and FikDC is a set of considered values of Iik in the piece-wise

5
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

approximation of ETP. The three functions u0k , v0k , and wik can Piecewise Linear Approximation (PLA) Procedure:
be respectively approximated from below by the following linear
inequalities (11), (12) and (13). Here, G0k (. ) and Gik (. ) are the first Step 0. Initialize Fk DC = Fk DC,0 ,N
k
= N,
k
0
, FikDC = FikDC,0 for
derivative of G0k (. ) and Gik (. ), respectively. all i ∈ NF DC , k ∈ K, and LB = −∞.
Step 1. Solving linear programming model SIRP by a commer-
  cial LP solver to obtain its optimal solution (q̄ik , q̄0k ,I¯ik ,I¯0k ,
u0k ≥ G0k (I¯) + G0k (I¯) Iik − I¯ , I¯ ∈ Fk DC , k ∈ K (11)
i∈NF DC ū0k ,v̄0k ,w̄ik ). The optimal objective value of SIRP , denoted by
  UB, is an upper bound of the optimal objective value of
 model SIRP. Compute the objective value of the feasible solu-
v0k ≥ G0k (I¯) + G0k (I¯) Iik + I0k − I¯ , I¯ ∈ Nk , k ∈ K (12)
tion (q̄ik , q̄0k ,I¯ik ,I¯0k ) of SIRP and update the best lower bound
i∈NF DC
of the optimal objective value of SIRP by LB = max(ETP(q̄ik ,
wik ≥ Gik (I¯) + Gik (I¯)(Iik − I¯), I¯ ∈ FikDC , i ∈ NF DC , k ∈ K (13) q̄ ,I¯ ,I¯ ), LB).
0k ik 0k
Step 2. If the relative gap (UB − LB)/UB < ε (ε is a given
Define a piecewise linearized model of SIRP as: small number representing the maximum admissible rela-
SIRP: tive gap), stop and output the solution (q̄ik , q̄0k ,I¯ik ,I¯0k ). Oth-

  erwise, update Fk DC = Fk DC ∪{ i∈N I¯ik }, N = N
Max ET P = ( pk + hck − f ck1 ) · μik  F DC k k
∪{ i∈N I¯ik + I¯0k }, ik = ik ∪{I¯ik } for all i ∈ NF DC ,
F DC F DC
k∈K i∈NF DC F DC
 k ∈ K, and go to Step 1.
− (hck − hck0 + f ck0 − f ck1 ) · u0k
k∈K The above procedure generates a series of lower bounds and
 upper bounds for the optimal objective value of SIRP. According to
− ( pk + hck0 + l sk − f ck0 ) · v0k Proposition 3, the upper bound UB is strictly decreasing in each
k∈K
  iteration of the procedure until UB = ET P ∗ , and the best lower
    bound LB is weakly increasing according to its definition. This im-
− hck0 · I0k + hck Iik − f ck1 · wik plies that the upper bound and the lower bound finally converge
k∈K i∈NF DC k∈K i∈NF DC to the same value with UB = ET P ∗ . At this value, an optimal so-

− v pk · qik · sci (14) lution of SIRP is obtained, since UB = LB and UB = ET P ∗ together
i∈N k∈K imply LB = ET P ∗ , and the feasible solution (q̄ik , q̄0k ,I¯ik ,I¯0k ) of SIRP
corresponding to the best lower bound LB is an optimal solution of
subject to (3)-(7) and (11)-(13). SIRP. So the above procedure always converges, it finds an optimal
This model depends on the sets Fk DC , N k
, FikDC , i ∈ NF DC , k ∈ or near-optimal solution of SIRP with relative gap smaller than ε
K. Let  = {Fk DC , N k
, F DC , i ∈ N
ik F DC , k ∈ K }. In the following, in terms of objective value.
SIRP is represented by SIRP  if we want to show this dependence,
otherwise it is simply represented by SIRP. 5. Evaluation of the model
∗
Let ET P ∗ and ET P denote the optimal objective value of SIRP
and SIRP, respectively, x∗ and x̄ denote the value of a variable x As the inventory replenishment planning problem in this pa-
at an optimal solution of SIRP and SIRP, respectively, we have the per has not been studied in the literature, we cannot compare our
following three propositions: model SIRP with an existing one. Since currently Alibaba applies a
deterministic approach based on demand forecasts to plan the in-
Proposition 2. The optimal solution of SIRP is also a feasible solution ventory replenishment of its distribution system for the double 11
∗
of SIRP and ET P provides an upper bound forET P ∗ . promotion, we evaluate the performance of SIRP by comparing it
with its deterministic counterpart which replaces each random de-
Proposition 3. For any given  = {Fk DC , N k
, FikDC , i ∈ NF DC mand in SIRP by its mean value, where the mean as the unbiased
, k ∈ K } and an optimal solution x = (q̄ik , q̄
  ,I¯ ,I¯ , ū estimation of the demand can be considered its forecast. Moreover,
   0k ik 0k +N 0k
+F DC
,v̄0k ,w̄ik ) of SIRP  , let k = k ∪ { i∈N Iik } , k =
F DC ¯ this comparison can help us to evaluate the value of the stochastic
 F DC
solution [5] obtained by SIRP.
N ∪ { i∈N I¯ + I¯ } , +F DC = F DC ∪ {I¯ } , + = {+F DC , +N
k ik 0k ik ik ik k k
F DC The deterministic model, which is denoted by DIRP, can be for-
, +
ik
F DC
, i ∈ NF DC , k ∈ K }. If ET P (x ) > ET P ∗ , SIRP + has an op- mulated as follows:
+ + + + ,I¯+ , ū+ ,v̄+ ,w̄+ ) such
timal solution x = (q̄ ik
, q̄
0k
,I¯ik 0k 0k 0k ik DIRP:
+
that ET P (x ) < ET P (x ) or ET P (x ) = ET P ∗ .
+
  
   
Proposition 4. If SIRP has an optimal solution (q̄ik , q̄0k ,I¯ik ,I¯0k , ū0k Max pk · μik − max μik − Iik , 0
k∈K i∈NF DC i∈NF DC i∈NF DC
,v̄0k ,w̄ik ) such that ET P (q̄ik , q̄0k ,I¯ik ,I¯0k , ū0k ,v̄0k ,w̄ik ) = ETP(q̄ik   
, q̄ ,I¯ ,I¯ ) then (q̄ , q̄ ,I¯ ,I¯ ) is also an optimal solution of  
0k ik 0k ik
∗
0k ik 0k
+ min I0k , max μik − Iik ,0
SIRP. In this case, ET P =ET P ∗ .
i∈NF DC i∈NF DC
   
According to Proposition 3, the linear constraints (11)-(13) used   
to approximate the objective function of SIRP in a piecewise linear − hck0 · I0k − min I0k , max μik − Iik ,0
way can be added to model SIRP dynamically (iteratively) until the k∈K i∈NF DC i∈NF DC

condition in Proposition 4 is satisfied or the difference between the

 
  
upper boundET P (q̄ik , q̄0k ,I¯ik ,I¯0k , ū0k ,v̄0k ,w̄ik ), denoted by UB here- − hck · max Iik − μik , 0
after, and the best lower bound of the optimal objective value of k∈K i∈NF DC i∈NF DC
SIRP , denoted by LB, is reduced to a given maximum admissible
  
  
relative gap (error). With this in mind, we propose the following − lsk · max μik − Iik , 0
iterative linear approximation procedure for solving SIRP. k∈K i∈NF DC i∈NF DC

6
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

  
  erated based on data of Alibaba. We compare SIRP with its deter-
− min I0k , max μik − Iik ,0 ministic counterpart DIRP for inventory replenishment planning of
i∈NF DC i∈NF DC the distribution system studied. For sake of confidentiality, some
  
   data of the instances will be not provided hereafter.
− f ck0 · min I0k , max μik − Iik ,0 For these instances, the number of FDCs in the distribution sys-
k∈K i∈NF DC i∈NF DC tem is set to 9 with totally 10 stocks (1 CDC and 9 FDCs), the
   number of products is set to 500 or 1000. The sales gross profit
    of each product is generated in a range between 10 and 200 RMB
− f ck1 · μik − max μik − Iik , 0 Yuan. The holding cost per unit of each product k at the CDC in the
k∈K i∈NF DC i∈NF DC i∈NF DC
 promotion period is set to pk × 12% × 10/365, where pk is the sales
 gross profit of the product, 12% is an annual holding cost rate, 10
− min (Iik , μik ) is the number of days in the promotion period including the time
i∈NF DC for delivering customer orders placed in the period, and 365 is the
 number of days in each year. The holding cost of each product at
− v pk · qik · sci (15)
each FDC is set as 1.2 times of the holding cost of the same prod-
i∈N k∈K
uct at the CDC. The lost sales cost per unit of each product is set
subject to constraints (3) to (7). where μ is the mean value of the according to its holding cost and its expected service level (90%,
ik
demand of product k at FDC i in the promotion period. 95%, or 97.5% in three scenarios). Note that the service level is only
By introducing additional variables x, y and used to set the lost sales cost, the safety stock constraints (7) are
 
zik to represent max( i∈N μik − i∈N Iik , 0 ), not considered in our numerical experiments. The shipping (trans-
  F DC F DC
min(I0k , max( i∈N μik − i∈N Iik ,0 )), i∈NF DC min (Iik , μik ), portation) cost of each inventory replenishment from the CDC to
F DC F DC
DIRP can be reformulated as the following linear programming an FDC or from suppliers to the CDC is set according to the re-
model. plenishment volume in m3 (i.e., the total volume of the products
 
   shipped in this replenishment) and the shipping distance in km.
Max pk · μik − hck0 · I0k − f ck1 · μik Since all FDCs are located in a region with their distances from the
k∈K i∈NF DC i∈NF DC CDC ranged from 30 to 150 km and the shipping cost per m3 per
   km is approximately one RMB Yuan, the shipping cost is generated
− x · pk + hck + lsk − f ck1
in a range between 30 and 150 RMB Yuan. The cost of fulfilling
k∈K
a customer order by other FDCs linearly depends on the shipping
     cost per m3 and the volume of the product(s) ordered. The cost of
+ y · pk + hck0 + lsk − f ck0 + f ck1 · zik
fulfilling a customer order by the CDC is set as 1.25 times of that
k∈K k∈K i∈NF DC
 by other FDCs. The volume of each product is generated from a
− v pk · qik · sci1 (16) range between 0.005 and 0.05 m3 .
i∈N k∈K Furthermore, the mean value of the demand of each product
subject to constraints (3) to (7), and: at each FDC in the promotion period is generated in the interval
  [3750, 60 0 0], with the standard deviation of the demand set as the
  mean value multiplied by the coefficient of variation generated in
x≥ μik − Iik , k ∈ K (17) the interval [0.1, 0.4]. Two types of probability distribution are con-
i∈NF DC i∈NF DC
sidered for the demand of each product at each FDC: one is normal
x≥0 (18) distribution and the other is gamma distribution. In case of gamma
demand, the two parameters “shape” and “scale” of each gamma
distribution involved at each FDC is set according to its mean value
y ≤ I0k , k ∈ K (19)
and standard deviation.
The storage capacity of each FDC i is set as 0.7 times of the
y ≤ x, k ∈ K (20) space required for stocking all products with mean demand, i.e.,

0.7 k∈K vk · μik . According to Alibaba’s practice, not all products
zik ≤ Iik , i ∈ NF DC , k ∈ K (21) can be pushed down to FDCs in the “double 11” promotion period,
so the coefficient 0.7 is taken less than 1 in our numerical exper-
iments. Note that here μik is not the mean daily demand but the
zik ≤ μik , i ∈ NF DC , k ∈ K (22)
mean demand of product k observed by FDC i in the promotion
Since the ending inventory levels Iik , i ∈ N, k ∈ K can be derived period. Because of the limited storage capacity of each FDC, only
from the replenishment quantities qik , i ∈ N, k ∈ K in both models highly profitable products are pushed down to FDCs by the pre-
SIRP and DIRP, any solution of the two models can be represented promotion inventory replenishment. The storage capacity of the
by(qik , i ∈ N, k ∈ K ). Let(qSik , i ∈ N, k ∈ K ) and (qD ik
, i ∈ N, k ∈ K ) de- CDC is sufficiently large and considered unlimited. Two scenarios
note the optimal solution of model SIRP and the optimal solu- are considered for joint replenishment capacity of each stock: one
tion of model DIRP respectively. The value of the stochastic solu- is unlimited and the other is limited. In the scenario with lim-
tion obtained by SIRP can be calculated asET P (qSik , i ∈ N, k ∈ K ) − ited capacities, the maximum joint replenishment volume (in m3 )
ET P (qD , i ∈ N, k ∈ K ), where ET P (qSik , i ∈ N, k ∈ K ) and ET P (qD ,i ∈ of each stock is set to 100∗ the number of products for each FDC,
ik ik
N, k ∈ K ) are the expected total profits (objective values) of SIRP and 100∗ the number of products∗ the number of FDCs for the CDC.
obtained at the stochastic solution (qSik , i ∈ N, k ∈ K ) and the deter- Here, 100 is the volume (in m3 ) of a truck with 15 m in length.
ministic solution (qD ik
, i ∈ N, k ∈ K ) respectively. The remaining parameters to set for the distribution system are
its initial inventories of all products at all FDCs and the CDC be-
6. Numerical experiments fore the pre-promotion inventory replenishment. In normal sales
periods, the inventory of each product k at each FDC i is used
In this section, the performance of our model SIRP and its solu- to cover its demand during the lead  time. This inventory is es-
tion method proposed is evaluated numerically on instances gen- timated by μ · (L + R ) + zα · σ  · L + R , where μ and σ 
ik ik ik ik ik ik ik ik

7
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Table 1 Table 3
Parameters of six sets of instances. Average and maximum profit gap between SIRP and DIRP for the instance sets with
limited joint replenishment capacity and normal demand.
Number of Expected Joint replenishment
Instance set products service level capacity instance set 1 2 3 4 5 6

1 500 90% Unlimited average gap 9.74% 9.83% 11.36% 8.83% 9.78% 11.3%
Limited maximum gap 11.82% 11.64% 12.88% 9.66% 11.69% 13.58%
2 500 95% Unlimited
Limited
3 500 97.5% Unlimited Table 4
Limited Average and maximum profit gap between SIRP and
4 1000 90% Unlimited DIRP for the instance sets with unlimited joint replen-
Limited ishment capacity and gamma demand.
5 1000 95% Unlimited
Limited Instance Set 2 5
6 1000 97.5% Unlimited Average Gap 3.8% 3.84%
Limited Maximum Gap 3.93% 3.94%

Table 5
Average and maximum profit gap between SIRP and
DIRP for the instance sets with limited joint replenish-
Table 2 ment capacity and gamma demand.
Average and maximum profit gap between SIRP and DIRP for the instance
sets with unlimited joint replenishment capacity and normal demand. Instance Set 2 5
Average Gap 9.67% 9.62%
Instance Set 1 2 3 4 5 6 Maximum Gap 11.51% 11.56%
Average Gap 3.57% 3.84% 4.46% 3.6% 3.88% 4.51%
Maximum Gap 3.76% 3.96% 4.59% 3.75% 3.98% 4.61%

6.1. Evaluation of the piecewise linear approximation (PLA) procedure

Our numerical experiments show that the number of iterations

of our PLA procedure is less than 25 and its computation time is
are the mean value and the standard deviation of daily demand quite short and in several seconds for all instances. Although the
of product k at FDC i, L and R are the replenishment lead time
ik ik
PLA’s maximum admissible relative gap ε is set to 10–5 (0.001%),
and the review lead time of product k at FDC i, and zα is the z- we observe that the real relative percentage gap may be small
value corresponding to service level α . For the products consid- than 0.001% and is ranged from 0.0 0 02% to 0.001% for all instances,
ered in the distribution system of Alibaba, L =R = 1,σ  ≤ 0.5μ which proves that PLA can quickly obtain a solution very close to
ik ik ik ik
for each FDC i and each product k, and zα ≤ 2, so we haveμ · the optimal solution for all instances.
 ik
(Lik + Rik ) + zα · σik · L + R ≤ 2 · μ · (L + R ) = 4 · μ . Accord-
ik ik ik ik ik ik
ing to this, the initial inventory of each product k at each FDC i
 6.2. Comparison of model SIRP and DIRP
is randomly set to an integer number less than 4 · μ . The initial
ik
inventory of each product at the CDC is set in the same way ex-
We have compared SIRP with DIRP for all instance sets in case
cept that its mean demand of each product is the sum of the mean
of demand with normal distribution and for two representative in-
demands of the product at all FDCs. Note that the mean demand
stance sets in case of demand with gamma distribution. The sum-
of each product at each FDC in the promotion period is set as 25
marized results of this comparison are presented in Tables 2 to
times of the mean daily demand of the product, because accord-
5, where column “Average Gap” represents the average value of
ing to a statistics of Alibaba, the total demand of all products in
the relative (percentage) gaps between the expected total profit of
the “double 11” promotion is about 25 times of their total daily
the solution of model SIRP found by the PLA procedure and the
demand.
expected total profit of the optimal solution of the deterministic
By combing 2 possible numbers of products, 3 possible ex-
planning model DIRP for 10 instances in each instance set, and col-
pected service levels, 2 possible scenarios of joint replenishment
umn “Maximum Gap” denotes the maximum relative gap of 10 in-
capacity, we generated 6 sets of instances as indicated in Table 1,
stances in each instance set. The detailed results of the relative gap
where each set contains 10 instances.
for each instance are given by Tables 6 to 21 in Appendix A3.
Our proposed models SIRP, DIRP, and piecewise linear approxi-
From Tables 2 and 3, we can see for the instance sets with nor-
mation (PLA) procedure were implemented in C++ and Cplex 12.9
mal demand, our proposed stochastic planning model can generate
and all instances were tested on a personal PC with i7–8565 U
a higher expected total profit compared to the deterministic plan-
CPU and 16GB RAM. The maximum admissible relative gap ε of
ning approach with average percentage profit increase ranged from
PLA was set to 10–5 , and Fk DC,0 , N, 0
, and FikDC,0 were set (initial-
 k 3.57% to 4.51% and maximum percentage profit increase ranged
ized) as k F DC,0
= {0, 1, 2, …, i∈N max Iik } , N, k
0
= {0, 1, 2, …, from 3.75% to 4.61% in case of unlimited joint replenishment ca-
 F DC

i∈NF DC max Iik

+ max I0k
},  F DC,0
ik
= {0, 1, 2, …,
i ∈ NF DC , k ∈ K, where max Iik and max I0k are the maximum inven-
tory level of product k at FDC i and at the CDC, respectively. The
maximum inventory level of product k at each stock is estimated
as the storage capacity of the stock divided by the volume of the
product. All linear programming models involved in the numerical
experiments were solved by using the MILP solver of Cplex 12.9.
The summarized results of the experiments are given in Table 2
to Table 5, whereas the detailed results are provided by Table 6 to
Table 21 in Appendix A3.
max Iik }, for all pacity. In case of limited joint replenishment capacity, the average
percentage profit increase becomes ranged from 8.83% to 11.36%,
and the maximum percentage profit increase becomes ranged from
9.66% to 13.58%. This implies that the joint replenishment (trans-
portation) capacity for each stock has a significant impact on the
relative profit increase of SIRP versus DIRP. Similar observations
can be obtained for the results of the instance sets with gamma
demand presented in Tables 4 and 5. It seems that demand distri-
bution has no significant impact on the performance of SIRP versus
DIRP.

8
B. Dai, H.X. Chen, Y.A. Li et al.
Fig. 2. GapSD between model SIRP and DIRP with different initial inventory levels for instance set 2.
Fig. 3. GapSD between model SIRP and DIRP with different initial inventory levels for instance set 5 .
6.3. Sensitivity analysis of the initial inventory levels of model SIRP
To evaluate the influence of the initial inventory levels on the
performance of our stochastic planning model SIRP versus the de-
terministic planning model DIRP, a sensitivity analysis on the lev-
els was conducted for instance set 2 and 5 in case with unlimited
joint replenishment capacity, where the initial inventory level of
each product k at each stock k is set to one of four possible val-
0
ues: Iik 0
= 0 (Case 1), Iik = 4μ /3 (Case 2), Iik 0 = 8 μ / 3
ik
0 = 4μ (Case 4). The results of this analysis are
(Case 3), and Iik
ik
presented in Fig. 2 and 3 where GapSD represents the relative per-
centage gap between the expected total profit of the solution of
model SIRP found by PLA and the expected total profit of the opti-
mal solution of model DIRP.
From Fig. 2 and 3, we can see that the relative percentage gap
of SIRP versus DIRP only changes slightly as the initial inventory
levels increase largely. This implies that the performance of SIRP
versus DIRP is not sensitive to the change of the initial inventory
levels.
7. Conclusions
An inventory replenishment planning problem in a two eche-
lon distribution system of Alibaba is studied in this paper. In the
system, the demand of each product at each stock is stochastic,
multiple products are jointly replenished at each stock, the storage
space of each stock is limited, and customer orders may be ful-
filled through multiple channels. The objective of the problem is
to maximize an expected profit. This stochastic decision problem
is formulated as a concave non-linear programming model and a
piecewise linear approximation approach is proposed to solve the
model. Numerical experiments on the instances generated partially
Omega 102 (2021) 102356
based on the data of Alibaba have validated the model and demon-
strated the efficiency of the solution approach.
Our study provides some managerial insights for pre-promotion
inventory replenishment planning. Firstly, taking into account the
demand uncertainy rather than only demand forecasts in this plan-
ning can create an important value which is not sensitive to cus-
tomer demand distributions. Secondly, the relative profit increase
or cost reduction derived by a stochastic planning approach with
respect to a determinstic planning approach is not signficantly af-
ik
fected by the initial inventory levels of the products involved.
This study can be extended to a distribution system with more
than two echelons and to a distribution system with order fulfil-
ment channels different from what we have considered in this pa-
per. Another extension is the consideration of multiple periods in
the replenishment planning. Considering non-stationary demands
in a multi-period planning model is also worthy to be investigated.
CRediT authorship contribution statement
B. Dai: Formal analysis, Investigation, Data curation, Software,
Validation, Visualization, Writing - original draft. H.X. Chen: Con-
ceptualization, Methodology, Formal analysis, Investigation, Writ-
ing - review & editing, Supervision, Project administration. Y.A.
Li: Investigation, Data curation. Y.D. Zhang: Project administration.
X.Q. Wang: Project administration, Funding acquisition. Y.M. Deng:
Funding acquisition.
Acknowledgement
This study is supported by the Alibaba Innovative Research
Project entitled “Optimization of Safety Stock Placement in Supply
Chains with Demand and Lead Time Uncertainty”.
9
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Appendices

Appendix A1. Formulation of the Expected Total Profit

Transformation of Eq. (1) into (2):

     
Since max( i∈N Iik − i∈N dik , 0 ) = i∈NF DC Iik − i∈NF DC dik + max ( i∈NF DC dik − i∈NF DC Iik , 0 ), the expected total profit given by
F DC F DC
Eq. (1) can be rewritten as:
  
    
ET P = E ( pk + hck − f ck1 )· dik − ( pk + hck + l sk − f ck1 ) · max dik − Iik , 0
k∈K i∈NF DC k∈K i∈NF DC i∈NF DC
  
  
+ ( pk + hck0 + l sk − f ck0 ) · min I0k , max dik − Iik ,0
k∈K i∈NF DC i∈NF DC
  
    
− hck0 · I0k + hck Iik + f ck1 · min (Iik , dik ) − v pk · qik · sci
k∈K i∈NF DC k∈K i∈NF DC i∈N k∈K
 
   +∞ 
= ( pk + hck − f ck1 ) · μik − ( pk + hck + l sk − f ck1 ) · max x − Iik , 0 fk0 (x )dx
0
k∈K i∈NF DC k∈K i∈NF DC
  
 +∞ 
+ ( pk + hck0 + l sk − f ck0 )· min I0k , max x − Iik ,0 fk0 (x )dx
0
k∈K i∈NF DC
 
    +∞ 
− hck0 · I0k + hck Iik + f ck1 · min (Iik , x ) fik (x )dx − v pk · qik · sci
0
k∈K i∈NF DC k∈K i∈NF DC i∈N k∈K

   +∞ 
= ( pk + hck − f ck1 ) · μik − ( pk + hck + l sk − f ck1 ) · 
(x − Iik ) fk0 (x )dx
k∈K i∈NF DC k∈K i∈NF DC Iik i∈NF DC
   

 +∞  i∈NF DC Iik  
+ ( pk + hck0 + l sk − f ck0 ) · 
min I0k , x − Iik fk0 (x )dx + min I0k , 0 fk0 (x )dx
k∈K i∈NF DC Iik i∈NF DC
0
 
    +∞ Iik
− hck0 · I0k + hck Iik + f ck1 · Iik fik (x )dx + x fik (x )dx
Iik 0
k∈K i∈NF DC k∈K i∈NF DC

− v pk · qik · sci
i∈N k∈K
   +∞ 
= ( pk + hck − f ck1 ) · μik − ( pk + hck + l sk − f ck1 ) · 
(x − Iik ) fk0 (x )dx
k∈K i∈NF DC k∈K i∈NF DC Iik i∈NF DC
 

 +∞ i∈NF DC Iik +I0k 
+ ( pk + hck0 + l sk − f ck0 ) · 
I0k fk0 (x )dx + 
(x − Iik ) fk0 (x )dx
k∈K i∈NF DC Iik +I0k i∈NF DC Iik i∈NF DC
 
    +∞ Iik
− hck0 · I0k + hck Iik + f ck1 · Iik fik (x )dx + x fik (x )dx
Iik 0
k∈K i∈NF DC k∈K i∈NF DC

− v pk · qik · sci (2)
i∈N k∈K

Transformation of Eq. (2) into (9): 

+∞ i∈NF DC Iik +I0k 
Since  I0k fk0 (x )dx +  (x − i∈NF DC Iik ) f k (x )dx
0
i∈NF DC Iik +I0k i∈NF DC Iik

+∞ i∈NF DC Iik +I0k  +∞ 
= 
I0k fk0 (x )dx + (x − Iik ) fk0 (x )dx + 
(x − Iik ) fk0 (x )dx
i∈NF DC Iik +I0k +∞
i∈NF DC i∈NF DC Iik i∈NF DC

   
+∞ +∞  +∞ 
= 
I0k fk0 (x )dx − 
x− Iik fk0 (x )dx + 
x− Iik fk0 (x )dx
Iik +I0k Iik +I0k Iik
i∈NF DC i∈NF DC i∈NF DC i∈NF DC i∈NF DC

   
+∞  +∞ 
= 
Iik + I0k − x fk0 (x )dx + 
x− Iik fk0 (x )dx,
Iik +I0k Iik
i∈NF DC i∈NF DC i∈NF DC i∈NF DC

10
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

the Eq. (2) can be rewritten as Eq. (9).

 
      +∞ 
k∈K
pk + hck − f ck1 · μik − pk + hck + l sk − f ck1 · 
x− Iik fk0 (x )dx
i∈NF DC k∈K i∈NF DC Iik i∈NF DC
     
  +∞  +∞ 
+ pk + hck0 + l sk − f ck0 · 
Iik + I0k − x fk0 (x )dx + 
x− Iik fk0 (x )dx
k∈K i∈NF DC Iik +I0k i∈NF DC i∈NF DC Iik i∈NF DC
 
    +∞ Iik
− hck0 · I0k + hck Iik + f ck1 · Iik fik (x )dx + x fik (x )dx
Iik 0
k∈K i∈NF DC k∈K i∈NF DC

− v pk · qik · sci
i∈N k∈K
   +∞ 
= ( pk + hck − f ck1 ) · μik − (hck − hck0 + f ck0 − f ck1 ) · 
(x − Iik ) fk0 (x )dx
k∈K i∈NF DC k∈K i∈NF DC Iik i∈NF DC
 +∞ 
− ( pk + hck0 + l sk − f ck0 ) · 
(x − Iik − I0k ) fk0 (x )dx
k∈K i∈NF DC Iik +I0k i∈NF DC
 
    +∞ Iik
− hck0 · I0k + hck Iik + f ck1 · Iik fik (x )dx + x fik (x )dx
Iik 0
k∈K i∈NF DC k∈K i∈NF DC

− v pk · qik · sci (9)
i∈N k∈K

Appendix A2. Proofs of the Four Propositions

Proof of Proposition 1:
The first and second derivatives of G0k (y ) and Gik (y ), i ∈ NF DC can be calculated by the following Eqs. (23) to (26).
d G0k ( y ) dy +∞
d (x − y ) 0 +∞
= −(y − y ) fk0 (y ) + fk (x )dx = − fk0 (x )dx = Fk0 (y ) − 1 (23)
dy dy y dy y

d 2 G0k ( y )
= fk0 (y ) (24)
d y2
dGik (y ) +∞ +∞
= y fik (y ) − fik (x )dx − y fik (y ) = − fik (x )dx = Fik (y ) − 1 (25)
dy y y

d2 Gik (y )
= fik (y ) (26)
d y2
As fk0 (y ) > 0, and fik (y ) > 0, all functionsG0k (y ) and Gik (y ) are strictly convex, i ∈ NF DC . Since the objective function is separable with
 
respect to G0k (y ) and Gik (y ), i∈SF Iik , i∈SF Iik + I0k , and Iik are linear with respect to variables qik ≥ 0, i ∈ N, k ∈ K, the objective function
is strictly concave when hck − hck + f ck − f ck1 > 0 and pk + hck0 + l sk − f ck0 > 0 for any product k.
0 0

Proof of Proposition 2:
For simplifying the notation used in the proof of this proposition and the next proposition 3, we first reformulate model SIRP by the
following linearly constrained concave programming model by redefining its variables and reformulating its constraints.

m
P : Max ET P = f i ( xi ) (27)
i=1

s.t. A1 x = b1 A2 x ≥ b2 , A3 x ≤ b3 (28)

x≥0 (29)
where x = (x1 , x2 , …., xm )T , m is the number of variables, which is also the number of nonlinear concave terms in the objective function,
A1 , A2 , A3 are matrices, and b1 , b2 , b3 are column vectors. In model P, each variable qik in SIRP is replaced by Iik − Iik 0 , each variable q
   0k
is replaced by I0k − I0k + i∈NF DC (Iik − Iik ), and new variables xi , i = 1, 2, …, m to represent Iik , i∈N Iik and i∈N Iik + I0k , i ∈ NF DC ,
0 0
F DC F DC
k ∈ K are introduced. The constraints of P contain all constraints of SIRP reformualed with the new variables, the equations that ensure

the sum of the variables representing Iik , i ∈ NF DC , equals the variable representing i∈N Iik , and the sum of the variable representing
  F DC
i∈NF DC Iik and the variable representing I0k equals the variable representing i∈NF DC Iik + I0k , and the constraints that ensure all qik and q0k

i∈NF DC (Iik − Iik ) ≥ 0, i ∈ NF DC , k ∈ K. In the objective function of P, all functions f i (xi ) are
0 ≥ 0 and I − I 0 +
are nonnegative, i.e., Iik − Iik 0
0k 0k
strictly concave under the conditions hck − hck0 + f ck0 − f ck1 > 0 and pk + hck0 + l sk − f ck0 > 0 for any product k.

11
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Accordingly, SIRP  can be represented by the following linear Let Xi denote the projection of X on variable xi , i.e., Xi = { xi |
programming model: ∃ x1 , …, xi -1 , xi +1 , …, xm , (x1 , x2 , …, xm ) ∈ X}. Since X is a finite

m polyhedron, Xi is a finite interval which has two extreme points
P Max ET P = zi (30) corresponding to its left and right boundary.
i=1 For the two successively considered points x̄li and x̄l+1
i
in the
subject to constraints (28), (29), and piece-wise approximation of fi (xi ), three cases may happen:

zi ≤ fi (xi ) + fi’ (xi )(xi − xi ), xi ∈ i , i = 1, 2, . . . , m (31) Case a): both x̄li and x̄l+1
i
are interior points of Xi ;
where fi is the first derivative of fi i is a set of considered values Case b): x̄li is an interior point of Xi but x̄l+1
i
is an extreme point
of xi in the piece-wise approximation of ETP,  = {i , i = 1, 2, of Xi ;
…, m}. Note that all “ ≥” in constraints (11)-(13) of model SIRP  Case c): x̄li is an extreme point of Xi but x̄l+1
i
is an interrior point
are changed to “ ≤” in constraints (31) of modelP  , because each of Xi ;
function fi (xi ) is strictly concave, which is obtained by multiplying
Note that it is impossible that x̄li and x̄l+1
i
are two extreme
a strictly convex functionG0k or Gik with a negative coefficient and
points of Xi , because if x̄li is one extreme point of the interval
adding possibly a linear term more.
Define the piece-wise linear function z̄i (xi ) = min { fi (x̄i ) + Xi , the point (x̄li , z̄i (x̄li )) must be generated by the intersection
x̄i ∈i of a tangent of fi (xi ) with one boundary (left or right) of Xi . In
fi (x̄i )(xi − x̄i )} for each i = 1, 2, …, m. Since P  is a maximiza- this case, the tangent passing (x̄li , fi (x̄li )) must intersect with the
tion solution, in its optimal solution, the value of each zi must first tangent before intersecting with the other boundary of Xi ,
be taken as large as possible (subject to all constraints (31)) for and the intersection of the two tangents generates the point (x̄l+1 i
,
given optimal value of xi , i.e., zi = z̄i (xi ). This implies that P  can +
z̄i (x̄l+1 )) such that x̄l+1 is not an extreme point of Xi .
i i
be equivalently formulated as the following piece-wise linear pro- The three cases are illustrated by Fig. 4(a), (b), and (c) respec-
gramming model: tively In this figure, not all tangents of fi (xi ) that represent its

m piece-wise linear approximation defined by + are shown, only
P  : MaxET P =
i
z̄i (xi ) (32) last three or two tangents amongst them are depicted.
+
i=1 From the definition of z̄i (xi ) and +i
, we have z̄i (xi ) ≤ z̄i (xi )
+
subject to constraints (28) and (29). for all i and any xi , so we have ET P+ (x ) ≤ ET P (x ). In
P  and P  have the same optimal objective value. If (x∗ , z∗ ) + +
the following, we prove ET P+ (x ) < ET P (x ) or ET P+ (x )
with x∗ = (x∗1 , …, x∗m ) and z∗ = (z1∗ , …, zm ∗ ) is an optimal
= ET P ∗ if the condition of this proposition holds.
solution of P  , x∗ is an optimal solution of P  . On the other hand, Firstly, according to the definition of P  , P + , x̄l and x̄l+1 , we
if x∗ is an optimal solution of P  , there is z∗ with zi∗ = z̄i (x∗i ) such have:
that (x∗ , z∗ ) is an optimal solution of P  .   
m
To prove Proposition 2, it is equivalent to prove that the op- ET P x = z̄i (x̄li ),
timal solution of P  is also a feasible solution of P and the op- i=1
timal objective value of P  provides an upper bound for the op-   
m
ET P+ x z̄i (x̄l+1
+ +
timal objective value of P. The first part of this proof is evident = i
).
since P  and P have the same constraints, i.e., the same solution i=1
space. For the second part, since all functions fi (xi ) are concave, we +
Since z̄i (x̄l+1 ) = min { fi (x̄i ) + fi (x̄i )(x̄l+1 − x̄i )} =
have fi (xi ) ≤ fi (x̄i ) + fi (x̄i )(xi − x̄i ) for any i = 1, 2, …, m and any i
x̄i ∈+
i
i
value of xi . This implies that fi (xi ) ≤ z̄i (xi ) for any i and xi . Then,
min{ min )}
j j
 m min L (x̄l+1 ) = L (x̄l+1 ), Lli (x̄l+1 =
we have ET P (x ) = m i=1 z̄i (xi ) ≥ i=1 f i (xi ) = ETP(x) for any x. j=0,...,l−1,l i i j=0,...,l−1 i i i

That is, the piece-wise linear objective function of P  is an upper 

min{z̄i (x̄i ), Li (x̄i )}, we
l+1 l l+1
have:
envelope of the nonlinear concave objective function of P. SinceP    
m
ET P+ x min{z̄i (x̄l+1
+
and P are both maximization problems and have the same solution = i
), Lli (x̄l+1
i
)}
space, the optimal objective value of P  , which is also the optimal i=1
objective value of P  , provides an upper bound for the optimal ob-
∗ Let M1 = { i | Lli (x̄l+1 ) ≥ z̄i (x̄l+1 ), i ∈ {1, 2, …, m}} and M2 = {
jective value of P, so we haveET P ≥ ET P ∗ . i i

Proof of Proposition 3:
i | Lli (x̄l+1
i
) < z̄i (x̄l+1
i
), i ∈ {1, 2, …, m}}, M1 ∪ M2 = {1, 2, …, m},
+
Let x and ET P (x ) denote an optimal solution and its opti- M1 ∩ M2 = ∅. We have z̄i (x̄l+1
i
) = z̄i (x̄l+1
i
) for each i ∈M1 , and
+
z̄i (x̄l+1 ) = Lli (x̄l+1 ) < z̄i (x̄l+1 ) for each i ∈M2 . Two cases may
mal objective value of P  defined in the proof of Proposition 2. To i i i
prove Proposition 3, it is equivalent to prove that if ET P (x ) > happen:
+ + Case 1: M2 = ∅. In this case, we have:
ET P ∗ , P + has an optimal solution x such that ET P+ (x ) <
+
ET P (x ) or ET P (x ) = ET P ∗ . 
m  
ET P+ (x ) = z̄i (x̄l+1 z̄i (x̄l+1 z̄i (x̄l+1
+ + + +

i
)= i
)+ i
)
Let X denote the feasible region, i.e., the set of all feasible solu-
j i=1 i∈M1 i∈M2
tions, of model P. X is a finite polyhedron. Suppose that x̄ j = (x̄1 ,
…,
j
j = 0, … L-1 be the l points considered in the piece-wise
x̄m ), 
m 
m
< z̄i (x̄l+1 )≤ z̄i (x̄li ) = ET P (x )
linear approximation of ETP, l ≥ 1. Let i = {x̄1i , x̄2i , …, x̄l−1
i
}, i = 1, i
i=1 i=1
… m, x̄l is an optimal solution of P  , where  = {i , i = 1, 2,
Case 2: M2 = ∅. In this case, we have:
…, m}; +i
= i ∪ {x̄li }, i = 1, … m, and x̄l+1 is an optimal so-
lution of P + , where + = {+ , i = 1, 2, …, m}. Define
j
Li ( xi ) 
m 
m
ET P+ (x ) = z̄i (x̄l+1 z̄i (x̄l+1 ) = ET P (x )
+ + +
i
i
)= i
= fi (x̄i ) + fi (x̄i )(xi − x̄i ), j = 0, … L-1,
j j j
i = 1, … m; and denote i=1 i=1
z̄i (xi ) in model P  by z̄i (xi ) to indicate its dependence on , i.e., +
In case 2, suppose that ET P+ (x ) = ET P (x ), then we
z̄i (xi ) = min { fi (x̄i ) + fi (x̄i )(xi − x̄i )} =
j
min L (xi ). have ET P (x + )  
=ET P (x ). Two cases may happen:
x̄i ∈i j=0,...,l−1 i

12
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Fig. 4. Succeessively considered points in the piece-wise approximation of fi (xi ) .

+
Case 2a: x = x , i.e., x̄l+1 = x̄l . This is impossible because Proof of Proposition 4:
∗
if x̄l+1 = x̄l , Lli (x̄l+1 ) = Lli (x̄li ) = f (x̄li ) for all i. Since ET P (x ) According to Proposition 2, ET P = ET P (q̄ik , q̄0k ,I¯ik ,I¯0k ,
m  l i m
= i=1 z̄i (x̄i ) > ET P ∗ ≥  l
i=1 f i (x̄i ), there is i such that z̄i (x̄i ) >
l ū0k ,v̄0k ,w̄ik ) ≥ ET P ∗ . Since (q̄ik , q̄0k ,I¯ik ,I¯0k ) is a feasible solution of
fi (x̄li ). For this i, we have Lli (x̄l+1 ) = f (x̄li ) < z̄i (x̄li ) = z̄i (x̄l+1 ), SIRP and SIRP is a maximization problem, we have ET P ∗ ≥ ETP(q̄ik ,
i i ∗ ∗
this is contradictory to i ∈ M1 (M2 = ∅). q̄ ,I¯ ,I¯ ) = ET P . This implies ET P =ET P ∗ , i.e., (q̄ , q̄ ,I¯ ,I¯ ) is
0k ik 0k ik 0k ik 0k
+
Case 2b: x = x , i.e., x̄l+1 = x̄l . In this case, ET P also an optimal solution of SIRP.
+
(x ) = ET P (x ) implies that model P  has two different op-
+
timal solutions x and x . Since the objective function of P  is
a piece-wise linear approximaton of the strictly concave objective Appendix A3. Computation Results
+
function of P, it is also concave. Then, x = x is only possible
when fi (x̄li ) = 0 for all i, where fi (x̄li ) is the first derivative of the In the following tables, UJRC and LJRC denote the scenario with
objective function of P with respect to variable xi at x̄l (x ). That unlimited joint replenishment capacity and the scenario with lim-
is, the tangent passing the point (x̄li , fi (x̄li )), represented by the lin- ited joint replenishment capacity, respectively. ND and GD repre-
ear equation zi = fi (x̄li ) + fi (x̄li )(xi − x̄li ), is a horizontal straight line sent that the demand of each product at each FDC is subject to
+ a normal distribution and a gamma distribution, respectively. In
(has slope zero) for all i. In this case, ET P (x ) = ET P ∗ .
these tables, column “ProfitSIRP ” indicates the expected total profit
In conclusion, in both cases (Case 1 and Case 2), we have either
+ + of the solution of model SIRP found by the PLA procedure, col-
ET P+ (x ) < ET P (x ) or ET P+ (x ) = ET P ∗ . This proposition
umn “ProfitDIRP ” presents the expected total profit of the opti-
is proved.
mal solution of the deterministic planning model DIRP. Column

Table 6
Comparison of model SIRP and DIRP on instances set 1 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,033,266,683 1,052,411,814 1,026,335,363 1,070,170,765 1,039,439,207 1,057,656,429 1,038,382,206 1,041,142,107 1,038,756,368 1,063,330,120
ProfitSIRP 1,070,864,829 1,088,761,338 1,062,281,601 1,110,426,196 1,076,671,285 1,094,378,626 1,075,133,792 1,078,404,868 1,074,677,677 1,102,981,188
GapSD 3.64% 3.45% 3.50% 3.76% 3.58% 3.47% 3.54% 3.58% 3.46% 3.73%

13
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Table 7
Comparison of model SIRP and DIRP on instances set 2 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,119,671,065 1,060,464,480 1,040,819,811 1,100,370,204 1,048,865,704 1,021,666,934 1,065,937,301 1,075,166,667 1,038,099,668 1,094,034,916
ProfitSIRP 1,162,713,735 1,100,103,002 1,080,548,199 1,143,489,166 1,090,249,723 1,059,655,759 1,105,940,271 1,116,355,172 1,078,368,886 1,137,411,249
GapSD 3.84% 3.74% 3.82% 3.92% 3.95% 3.72% 3.75% 3.83% 3.88% 3.96%

Table 8
Comparison of model SIRP and DIRP on instances set 3 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,112,851,598 1,053,905,374 1,034,374,075 1,093,687,085 1,042,398,076 1,015,298,909 1,059,459,816 1,068,598,914 1,031,667,264 1,087,407,383
ProfitSIRP 1,162,457,223 1,099,850,334 1,080,329,151 1,143,334,135 1,090,092,819 1,059,279,408 1,105,698,500 1,116,177,141 1,078,180,453 1,137,285,273
GapSD 4.46% 4.36% 4.44% 4.54% 4.58% 4.33% 4.36% 4.45% 4.51% 4.59%

Table 9
Comparison of model SIRP and DIRP on instances set 4 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 2,186,581,936 2,094,300,973 2,056,655,882 2,162,905,891 2,196,737,308 2,096,276,473 2,079,272,909 2,108,087,158 2,098,333,648 2,125,952,856
ProfitSIRP 2,265,641,414 2,171,149,963 2,127,340,737 2,243,340,526 2,279,173,925 2,168,323,230 2,154,125,771 2,186,241,160 2,171,549,285 2,200,885,401
GapSD 3.62% 3.67% 3.44% 3.72% 3.75% 3.44% 3.60% 3.71% 3.49% 3.52%

Table 10
Comparison of model SIRP and DIRP on instances set 5 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 2,156,663,295 2,060,879,941 2,172,644,018 2,072,528,640 2,102,541,826 2,082,829,010 2,115,823,878 2,060,629,988 2,091,582,509 2,150,233,877
ProfitSIRP 2,239,775,004 2,141,941,857 2,256,537,086 2,154,665,869 2,180,998,698 2,160,964,414 2,199,954,332 2,142,550,533 2,171,667,252 2,235,657,191
GapSD 3.85% 3.93% 3.86% 3.96% 3.73% 3.75% 3.98% 3.98% 3.83% 3.97%

Table 11
Comparison of model SIRP and DIRP on instances set 6 with UJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 2,143,434,592 2,048,082,307 2,159,362,793 2,059,987,070 2,089,484,594 2,069,893,415 2,102,742,384 2,048,040,613 2,078,627,650 2,137,164,002
ProfitSIRP 2,239,398,666 2,141,478,198 2,256,160,222 2,154,426,691 2,180,342,038 2,160,341,506 2,199,632,055 2,142,266,869 2,171,199,278 2,235,410,946
GapSD 4.48% 4.56% 4.48% 4.58% 4.35% 4.37% 4.61% 4.6% 4.45% 4.6%

Table 12
Comparison of model SIRP and DIRP on instances set 1 with LJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 939,849,103 940,632,555 946,595,458 964,368,992 950,254,617 978,611,839 962,296,153 957,120,948 945,491,894 984,369,546
ProfitSIRP 1,038,478,232 1,051,800,354 1,033,336,282 1,071,194,324 1,043,351,588 1,066,208,052 1,045,718,346 1,042,841,967 1,038,330,498 1,069,183,186
GapSD 10.49% 11.82% 9.16% 11.08% 9.80% 8.95% 8.67% 8.96% 9.82% 8.62%

Table 13
Comparison of model SIRP and DIRP on instances set 2 with LJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,013,862,519 1,011,549,134 935,078,699 1,010,758,282 929,032,955 929,644,149 973,248,154 979,637,507 936,629,791 1,013,396,546
ProfitSIRP 1,121,663,346 1,076,031,072 1,037,114,446 1,105,392,026 1,037,195,036 1,033,182,403 1,071,739,825 1,072,628,558 1,036,494,174 1,093,889,213
GapSD 10.63% 6.37% 10.91% 9.36% 11.64% 11.14% 10.12% 9.49% 10.66% 7.94%

Table 14
Comparison of model SIRP and DIRP on instances set 3 with LJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 991,252,866 997,590,386 912,808,041 990,858,503 904,763,789 909,231,873 952,960,242 959,064,161 915,163,023 994,871,912
ProfitSIRP 1,113,240,570 1,070,327,428 1,028,372,204 1,097,874,606 1,027,217,168 1,026,322,251 1,064,425,870 1,064,424,709 1,028,186,638 1,085,822,049
GapSD 12.31% 7.29% 12.66% 10.80% 13.53% 12.88% 11.70% 10.99% 12.35% 9.14%

Table 15
Comparison of model SIRP and DIRP on instances set 4 with LJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 2,021,266,825 1,937,147,660 1,937,888,283 1,974,064,125 2,035,742,975 1,926,027,260 1,923,378,537 1,939,468,953 1,932,457,123 1,981,509,311
ProfitSIRP 2,201,226,652 2,107,990,870 2,085,636,081 2,164,682,054 2,209,313,714 2,104,311,550 2,097,633,878 2,122,899,495 2,106,723,761 2,139,527,910
GapSD 8.9% 8.82% 7.62% 9.66% 8.53% 9.26% 9.06% 9.46% 9.02% 7.97%

14
B. Dai, H.X. Chen, Y.A. Li et al. Omega 102 (2021) 102356

Table 16
Comparison of model SIRP and DIRP on instances set 5 with LJRC and ND.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,968,430,218 1,871,792,870 1,972,249,856 1,904,479,739 1,894,078,285 1,944,197,356 1,931,253,079 1,929,421,449 1,930,031,188 1,909,888,864
ProfitSIRP 2,156,913,390 2,071,979,293 2,172,713,497 2,076,485,296 2,107,443,950 2,110,997,686 2,121,779,045 2,086,464,381 2,099,400,210 2,133,228,476
GapSD 9.58% 10.69% 10.16% 9.03% 11.26% 8.58% 9.87% 8.14% 8.78% 11.69%

Table 17
Comparison of model SIRP and DIRP on instances set 6 with LJRC and ND .

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,927,149,197 1,830,656,446 1,929,060,083 1,867,221,582 1,849,460,072 1,910,214,265 1,890,748,905 1,897,345,857 1,892,820,528 1,861,484,780
ProfitSIRP 2,140,363,073 2,057,019,357 2,155,919,493 2,061,727,416 2,090,951,676 2,098,636,885 2,106,151,605 2,074,746,671 2,084,246,007 2,114,265,151
GapSD 11.06% 12.37% 11.76% 10.42% 13.06% 9.86% 11.39% 9.35% 10.11% 13.58%

Table 18
Comparison of model SIRP and DIRP on instances set 2 with UJRC and GD.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,119,886,878 1,060,620,505 1,041,020,598 1,100,581,970 1,049,055,617 1,021,867,717 1,066,130,635 1,075,320,673 1,038,279,404 1,094,231,915
ProfitSIRP 1,162,496,403 1,099,787,854 1,080,265,087 1,143,289,130 1,090,067,058 1,059,387,282 1,105,647,411 1,116,031,249 1,078,123,083 1,137,261,564
GapSD 3.8% 3.69% 3.77% 3.88% 3.91% 3.67% 3.71% 3.79% 3.84% 3.93%

Table 19
Comparison of model SIRP and DIRP on instances set 5 with UJRC and GD.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 2,157,095,686 2,061,231,740 2,173,092,650 2,072,948,278 2,102,992,889 2,083,259,196 2,116,195,178 2,061,018,586 2,091,986,838 2,150,649,584
ProfitSIRP 2,239,288,536 2,141,589,809 2,256,089,220 2,154,379,362 2,180,397,348 2,160,389,865 2,199,624,370 2,142,268,973 2,171,164,012 2,235,406,055
GapSD 3.81% 3.9% 3.82% 3.93% 3.68% 3.7% 3.94% 3.94% 3.78% 3.94%

Table 20
Comparison of model SIRP and DIRP on instances set 2 with LJRC and GD.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,014,944,927 1,012,600,189 936,088,091 1,011,913,192 929,892,042 930,719,129 974,347,454 980,707,238 937,641,017 1,014,559,612
ProfitSIRP 1,121,301,552 1,075,515,442 1,036,740,758 1,104,950,222 1,036,936,786 1,032,747,830 1,071,301,003 1,072,214,636 1,036,102,998 1,093,576,098
GapSD 10.48% 6.21% 10.75% 9.19% 11.51% 10.96% 9.95% 9.33% 10.5% 7.79%

Table 21
Comparison of model SIRP and DIRP on instances set 5 with LJRC and GD.

Instance 1 2 3 4 5 6 7 8 9 10

ProfitDIRP 1,970,747,180 1,873,888,372 1,974,454,790 1,906,690,633 1,896,187,064 1,946,584,844 1,933,431,768 1,931,665,026 1,932,332,548 1,911,752,840
ProfitSIRP 2,156,151,539 2,071,272,273 2,172,056,519 2,075,833,727 2,106,740,626 2,110,112,926 2,121,075,572 2,085,670,308 2,098,736,557 2,132,672,933
GapSD 9.41% 10.53% 10.01% 8.87% 11.1% 8.40% 9.71% 7.97% 8.61% 11.56%

“GapSD ” represents the relative percentage gap between ProfitSIRP [9] De Kok T, Grob C, Laumanns M, Minner S, Rambau J, Schade K. A typology and
and ProfitDIRP , i.e., (ProfitSIRP – ProfitDIRP ) / ProfitDIRP . literature review on stochastic multi-echelon inventory models. Eur J Oper Res
2018;269:955–83.
References [10] Fattahi M, Mahootchi M, Moattar Husseini SM, Keyvanshokooh E, Al-
borzi F. Investigating replenishment policies for centralised and decen-
tralised supply chains using stochastic programming approach. Int. J Prod Res
[1] Agatz NAH, Fleischmann M, Van Nunen JAEE. E-fulfillment and multi-channel
2015;53(1):41–69.
distribution-A review. Eur J Oper Res 2008;187(2):339–56.
[11] Guastaroba G, Speranza MG, Vigo D. Intermediate facilities in freight trans-
[2] Alnaggar A, Gzara F, Bookbinder JH. Distribution planning with random
portation planning: a survey. Transp Sci 2016;50(3):763–89.
demand and recourse in a transshipment network. EURO J Transp Logist
[12] Herbon A. Replenishing an inventory system permitting lost sales under Pois-
2020;9(1):10 0 0 07.
son demand and short lead times: explicit performance and an efficient algo-
[3] Avci MG, Selim H. A multi-objective simulation-based optimization approach
rithm. Comput Ind Eng 2019;137:105998.
for inventory replenishment problem with premium freights in convergent
[13] Hübner A, Holzapfel A, Kuhn H. Operations management in multi-channel re-
supply chains. Omega: Int J Management Sci. 2018;80:153–65.
tailing: an exploratory study. Oper Management Res 2015;8(3–4):84–100.
[4] Bailey JP, Rabinovich E. Internet book retailing and supply chain manage-
[14] Ishfaq R, Bajwa N. Profitability of online order fulfillment in multi-channel re-
ment: an analytical study of inventory location speculation and postponement.
tailing. Eur J Oper Res 2019;272(3):1028–40.
Transp Res Part E: Logist Transp Rev 2005;41(3):159–77.
[15] Ivanov D, Pavlov A, Sokolov B. Optimal distribution (re) planning in a cen-
[5] Birge JR, Louveaux F. Introduction to Stochastic Programming. Springer Sci-
tralized multi-stage supply network under conditions of the ripple effect and
ence& Business Media; 2011.
structure dynamics. Eur J Oper Res 2014;237(2):758–70.
[6] Chung CS, Flynn J, Kuik R, Staliński P. A single-period inventory placement
[16] Khouja M. The single-period (news-vendor) problem: literature review and
problem for a supply system with the satisficing objective. Eur J Oper Res
suggestions for future research. Omega: Int J Management Sci. 1999;27:537–53.
2013;224(3):520–9.
[17] Kılıç YE, Tuzkaya UR. A two-stage stochastic mixed-integer program-
[7] Chung CS, Flynn J, Stalinski P. A single-period inventory placement prob-
ming approach to physical distribution network design. Int J Prod Res
lem for a supply chain with the expected profit objective. Eur J Oper Res
2015;53(4):1291–306.
2007;178(3):767–81.
[18] Qin Y, Wang R, Vakharia AJ, Chen Y, Seref MM. The newsvendor problem: re-
[8] De Kok TG, Fransoo JC. Planning supply chain operations: definition
view and directions for future research. Eur J Oper Res 2011;213(2):361–74.
and comparison of planning concepts. Handb oper res management sci.
2003;11:597–675.

15
B. Dai, H.X. Chen, Y.A. Li et al.
[19] Qiu Y, Qiao J, Pardalos PM. Optimal production, replenishment, delivery, rout-
ing and inventory management policies for products with perishable inventory.
Omega: Int J Management Sci 2019;82:193–204.
[20] Verrijdt JHCM, De Kok AG. Distribution planning for a divergent N-echelon net-
work without intermediate stocks under service restrictions. Int J Prod Econ
1995;38(2–3):225–43.
[21] Verrijdt JHCM, De Kok AG. Distribution planning for a divergent de-
potless two-echelon network under service constraints. Eur J Oper Res
1996;89(2):341–54.
16
Omega 102 (2021) 102356
[22] Wang W, Fung RY, Chai Y. Approach of just-in-time distribution requirements
planning for supply chain management. Int J Prod Econ 2004;91(2):101–7.
[23] Ye TF, Sun H. Price-setting newsvendor with strategic consumers. Omega: Int
J Management Sci 2016;63:103–10.
[24] Zhang D, Xu H, Wu Y. Single and multi-period optimal inventory control mod-
els with risk-averse constraints. Eur J Oper Res 2009;199(2):420–34.