Inventory Cost Effect of Consolidating Several One-Warehouse Multiretailer Systems

In this article we present an interesting result on consolidating several one-warehouse multiretailer systems with deterministic customer demands. We examine the inventory cost impact of decreasing the number of warehouses used (by possibly re-assigning retailers to other warehouses). We prove that (i) using only two properly selected warehouses, we can ensure that the system-wide inventory cost is at most 2% more than the original inventory cost in the worst case, and (ii) using one properly selected warehouse alone, we can ensure that the inventory cost is at most 14.75% more than the original inventory cost in the worst case. These results partially explained why warehouses consolidation is popular in the industry these days.