A Theory of Allocation of Stocks to Warehouses

Abstract

An allocation problem that frequently arises in large industrial and military supply systems is this a certain quantity of material has just been received, or is about to be received by a central agency, and another quantity is expected to be received at a known time in the future. The material must be distributed, now, to a number of peripheral activities that we can think of as warehouses. The statistics of consumption at each warehouse are known, and the problem is to allocate the material to the warehouses in a manner that optimizes some management objective. In this paper, a model for the two most common management objectives is proposed, and in each case, a basic theorem is proved that tells how the allocation should be performed. An approximation leads to a final formula that is simple and practical enough to be used in allocating large numbers of items, with either computer or hand computation.

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