Inventory models for multi-warehouse systems under fixed and flexible space leasing contracts

In this paper, we analyze a practical situation in which an inventory manager is faced with several options to store excess stocks whenever the storage capacity of his/her warehouse is insufficient. The manager can choose from either storage space providers through fixed long term or flexible leasing contracts, or the manager can acquire the extra required space from the spot market. We formulate this inventory problem with multiple storage facilities as a nonlinear program and show that it has a global optimal solution. We then provide closed-form solutions for the optimal ordering quantity and leased spot market space depending on the value of the unconstrained economic order quantity. In addition, we develop some structural properties for the optimal ordering policy and include several examples to illustrate the formulated models. (C) 2011 Elsevier Ltd. All rights reserved.