Modeling an N – warehouse Stock Allocation via Dynamic Programming Technique

Abstract

Stock allocation is a system used to ensure that goods and services reach the ultimate users through efficient stocking in warehouses close to the consumers. The dire need for optimum distribution of goods to both retailers and consumers has caused a reasonable drift from ordinary allocation to developing a mathematical model that ensures efficient allocation of goods and services. Allocation of stock to warehouses is a complex problem that is broken down into simpler sub problems. Dynamic programming problem is a linear optimization method that obtains optimum solution of a multivariable problem by decomposing it into sub problems. A recursive equation links the different stages of the problem such that the optimum feasible solution of each stage is guaranteed to be the optimum feasible solution for the entire problem. This work will use the dynamic programming technique to develop a stock allocation model that would ensure optimum allocation of goods and services for maximum returns. Relevant related literature are presented and reviewed with the aim of using this research to improve stock allocation processes. A manufacturing company that has at least six distribution outlets is used as a case study. The model is applied to data collected from the firm to obtain an enhanced stock allocation.