Risk-averse Policies in a One-Warehouse Multiple-Retailer System with Demand and Supply Uncertainty
We examine demand and supply uncertainty in a One-Warehouse Multiple-Retailer system and compare centralized and decentralized inventory strategies. We show that while risk pooling generates lower expected costs in a centralized strategy, risk diversification generates lower risk in a decentralized strategy. We demonstrate that under certain risk-averse objectives, decentralizing inventory is the optimal policy for the OWMR system.