Optimal Equipment Transfer Pricing in Service Systems

Author(s): Charles E. Love

Source: The Journal of the Operational Research Society, Vol. 31, No. 7 (Jul., 1980), pp.
657-666
Published by: Palgrave Macmillan Journals on behalf of the Operational Research Society
Stable URL: https://www.jstor.org/stable/2580855
Accessed: 21-08-2019 15:03 UTC

REFERENCES
Linked references are available on JSTOR for this article:
https://www.jstor.org/stable/2580855?seq=1&cid=pdf-reference#references_tab_contents
You may need to log in to JSTOR to access the linked references.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms

Operational Research Society, Palgrave Macmillan Journals are collaborating with JSTOR
to digitize, preserve and extend access to The Journal of the Operational Research Society

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
J. Opl Res. Soc. Vol. 31, pp. 657 to 666 0160-5682/80/0701-0657S02.00/0
Pergamon Press Ltd 1980. Printed in Great Britain
? Operational Research Society Ltd

Optimal Equipment Tra

in Service Systems
CHARLES E. LOVE
Simon Fraser University

A model for determining optimal equipment transfers in a multi-location, multi-period

is presented. For a reasonable number of locations, the size of the resulting progr
straightforward global optimization. A decomposition procedure is developed whic
location to be treated separately. Control of equipment transfers between locations
adjustment of a set of holding costs, one for each period. These holding costs are de
that the supply of unwanted units, by some locations, is met by the demand for these
locations. Unused units remain idle for the period. The procedure introduced here is
that it allows a firm to operate their service facilities in a profit-centered fashion.
results are reported in the paper and extensions of this approach to other, similar type
problems are suggested.

INTRODUCTION

An equipment-rental firm is operating out of several locations. T

best to continuously reallocate the equipment in response to shif
individual locations is investigated. Examples of firms facing this sort
typical car-rental operation, equipment suppliers when several g
involved and even, in some circumstances firms needing to realloca
among its various offices.
This class of problem has been approached using linear programm
grality of the equipment decision has required the use of integer
though useful, I.P. presents its own problems since for any reason
units in the system, the program becomes computationally infeasib
lem of stochastic demands in each time period is difficult to inco
format and modelling some times takes the form of a dynamic progra
multi-location, multi-period problem introduced here, the size of t
program makes straightforward global optimization impossible. Th
program to preserve the integrality and stochastic elements but th
sition procedure to achieve computational feasibility.

EQUIPMENT ALLOCATION DECISIONS

Each location consists of a pool (one or more units) of equipment available for
customers. Demands on the pool at each location are stochastic in nature; such
arriving customers will either be serviced immediately, or if no equipment is a
will either queue up or leave unsatisfied.
In order to avoid the cost of customers waiting and/or leaving unsatisfied the firm
consider transferring in a unit of equipment from another location. Conversely,
utilization rate at a location falls too low, the firm may well consider transferring so
this equipment to other locations.
In order to control the transferring of units, the concept of a central wareho
introduced. Surplus units not required at a location are shipped to the central wa
Additional units required by a location come only from the central warehouse. Th
first assumes that the amount of equipment in the system is fixed. Transfer decision
determined by responding to short-term shifts in the demand at various location
the model is extended to allow for changes in size of the fleet.
657

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 Journal of the Operational Research Society Vol 31, No. 1

SINGLE LOCATION OPERATING COSTS

The operating costs for a location refer only to the costs of oper
for the period. Define a time period of unit length. Decisions to
made at the beginning of the time period. Pjiy^kj) is the probabil
has a total of y} units available, then kj will be in service at the e
This is the standard definition of a steady state queuing probabi
calculate. Because it is a steady-state probability, its determinatio
length of the decision period. The period is assumed long enough
conditions in order to allow (conceptually) for equipment transf
While equipment transfer decisions are made at the beginning o
that some of the units to be released to the central warehouse are still in service. The
assumption of steady state is equivalent to shipping the units only after they retu
from service. The definition does not allow for a queue of waiting customers. It
assumed that if all equipment is in service, the customer leaves unsatisfied. The pro
is easily extended to allow for queues of waiting customers merely by defining kj a
number of customers in the system at the end of the period; where kj is greater than j
then the excess customers queue.
Define Rj, as the cost per unit time of operating a unit of equipment in service. T

Rj\ X kjPj[yj9kj-]

is the total expected operating cost of location j for the period. Aj is the cost of a
customer, which can be interpreted as lost profits and, may include some increme
cost associated with customer ill-will.

Then {Aj.Xj.Pj\_yj,y^\) is the total expected cost of lost customers during the per
where Xj is the average arrival rate of customers to location j during the period. (T
standard queuing assumption of a Poisson customer arrival rate and negative-
exponential service rate are maintained here; although for reasonable small number
units at each location, Erlang and/or hyper-exponential distributions can be intr
duced).5 Finally define: L/lj/,-], as the total expected operating plus shortage costs
location j for the period, when the location has yj units available during the period
rental.

Lj[yj] = Rj\ t kjPj[yj9 kj] \ + Aj.Xj.Pj[yj9 yj] (1

Equation (1) is the definition of the cost of operating a simple multiserver queuin
system. As such, L,Oj] is discrete and monotonically convex with respect to j/,-.4 W
ever extensions to the queuing behaviour are introduced, this discrete convexity of Lj[j/
must not be violated since the solution procedure used in this paper hinges on this point

SINGLE PERIOD MODEL FOR EACH LOCATION

Define the following single period model for each location:

Cj[Xj] = minimum {Lj[yf] + aj.(y} - x}) + h.y}} (2)

(yj-xj)

where Xj is the entering number of units at location j and yj is the number of o

units at j after transfers.
aj-(yj ~ xj) *s reaUy two scalars: bj(x} ? yj) when Xj > yj'. i.e. sending sur
back to the central warehouse at a cost of bj per unit; or dj(y} ? x}) when j/
receiving units from the central warehouse at a cost d} per unit. h: is the lin
holding an inventory of equipment (common to all j in the period).
658

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 C. E. Love?Optimal Equipment Transfer Pricing

Decomposition solution
The solution of (2) for each location need not result in a globally feasible solution, let
alone give glpbal optimality. The central warehouse can only supply additional units
requested if they become available from other locations. Without the availability of an
external source, if more units are demanded than become available, then the solution is
infeasible. On the other hand, if more units are supplied than are demanded, then the
solution, while feasible, is most likely not optimal. The central warehouse can be in one
of three possible conditions: (a) oversubscribed where total units demanded by locations
requiring extra units exceeds the total units being released by locations with an excess.
That is:

[I Dj = I (yj - x}): \/(yj - x}) > 0 j > |? Sj = ? (x, - yj): V(x, - ys) > 0 \.
(b) undersubscribed when total demand falls short of total supply

\lDj<lSj
l j j

(c) In balance

In general, the firm would require the central warehouse to be in condition (c). It is
infeasible for it to be in condition (a) and unlikely that a firm would wish to settle for
having surplus units idle at the central warehouse, where they have no earning power
[condition (b)]. Controlling the status of the central warehouse is the subject of the
remainder of this paper.

SINGLE PERIOD COSTS FOR THE FIRM

It should first be noted that the status of the central warehouse is u

the choice of h (all other terms in equation (2) being known in ad
discrete convex and by virtue of this, C/[j//], only after specificati
mum be found.
Secondly, it is clear from equation (2) that as the holding cost is lowered, the number
of units requested by each location will always be as great or greater than the number
requested at any higher holding cost. This follows directly from the discrete convexity of
Cj\jj~]. From a known starting level, Xj, the optimum number of units requested is found
by comparing the incremental cost of acquiring and holding the last unit (a} + h), with
the incremental reduction in operating cost, Lj[j//]. Lowering h merely results in lower-
ing the incremental cost of acquiring each unit, thus making it more attractive. Con?
versely, raising h will always result in the same or less units being demanded by each
location.
Now consider the effect on the firm as a whole in raising h. At the beginning of the
period, Xj is known for all locations. By raising h, every location will request the same or
less units: no location will demand less. The overall result will be the same or a greater
surplus of units at the central warehouse than existed before. Conversely, lowering h,
from a known starting position xj at each location, will result in the same or less units at
the central warehouse.

Proposition 1
From a known starting position for each location, the total expected operating costs
for the firm as a whole are uniquely determined by the specification of h.
659

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 Journal of the Operational Research Society Vol. 31, No. 1

Proof
Suppose from starting position Xj (for each location) the system is exactly in balance
[condition (c)]. Raise h by a small amount such that one location will just release a single
unit. The net position of the central warehouse is now:

j j

Continuing to raise h
is raised to a level w

By continuing to ra
steps from 0 to th
opposite effect. Th
negative. Negative s
conditions, or as extr
it is clear that with
the status of the c
operating costs for
include all integer v
structures at two o
units and certain ste
eliminated.

THE FORWARD DYNAMIC PROGRAM

The decomposition solution requires a knowledge of the starting con

location and the specification of a holding cost which enables the stat
warehouse to be determined and a multi-period forward dynamic prog
allocate equipment throughout the system to be defined:

Gn[Mn] = minimum^XC5I>3] + wn.M" + G"-1

where: h" ^ j

M-^llSj-ZD,
u' J

If M" is positive (a surplus si

at a cost w+n per unit for t
units are brought in at a cos
also be treated simply as de
requires alteration to the inve
Gn[Mn], is the optimum tot
with an imbalance Mn at th
search procedure. For each p
Mn~l to each ending state M
(i.e. optimum starting state
however involves excessive
Furthermore, special care m
ified if global optimality is
problems.6 A bidding algorit
structure of the problem is
Everett gaps.
660

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 C. E. Love?Optimal Equipment Transfer Pricing

BIDS TABLE

Each starting state Mn + 1 in a period implies a distribution of equip

locations in the system. For this distribution, a gain vector can be c
each element of the vector is the gain (exclusive of holding cost) by a
when adding one more unit to its stock.
Define the gain element for location j as

gfn' \xj) = Lj(xj) - Lj(Xj - 1) - dj. (4)

Similarly, define a cost vector for state Mn~l in which each element is the co
of holding) to release a unit.

ff"' \xj) = Lj(xj - 1) - Lj{xj) + bj. (5)

These two vectors represent the bids table associated with a particular

It can be seen that between any two locations, j and k (j =t= k) if gfn
then a unit would be switched from k to j. Once such a switch has bee
bids vectors would require updating via (4) and (5) since the inventory
locations have been changed. After each bid is executed, the updated
compared for further switches. When no further switches are to be made,
distribution has been generated without affecting the status of the ce
That is for any beginning state M"_1, an ending state M'n can be labell
same inventory level but a revised distribution among the locations. If
from state M"_1 then the distribution is not revised.
With each newly generated bids table, there can be several gain eleme
several cost elements.

Lemma

At each stage, in comparing the gains vector with the cost vector, optimal switches are
obtained by comparing the largest gain element against the smallest cost element. If the
largest gain exceeds the smallest cost then execute the switch and update the table.

Proof
At each stage, the maximum opportunity gain to the firm as a whole is the difference
between largest gain and smallest cost. To switch any other elements in the table would
result in a lower total opportunity gain in redistributing the inventory (i.e. M""1 to M'n).
This does not imply that such switches will ultimately be executed. In solving equation
(3) it may result in switches not being optimal.
So far, no use has been made of the period holding cost embedded in the optimal
solution of (3). The generation of this new bids table with the same status in M'n will be
called the inventory reshuffle which is then used to generate holding costs.

Theorem

All elements of the bids table made during the reshuffle to obtain M'n, are valid
holding costs for other states Mn, at the end of the period.

Proof
Arbitrarily define:

(a) A location j will not accept another unit until the holding cost is strictly less than the
gain element. {hn < gfn~\xj)}
(b) A location will release a unit any time the period holding cost equals or exceeds the
cost element. {hn ^ffn~\xj)}
By definition of (4), if location j is charged a holding cost hn which is strictly less than
the gain, then an addition unit would be demanded from the central warehouse. If the
holding cost is raised to meet or exceed the gain then the unit would not be demanded.
o.R.s. 31/7-H 661

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 Journal of the Operational Research Society Vol. 31, No. 1

Similarly by (5) if: {hn ^ffn~\xj)}, then the location will release a unit back to the
central warehouse. It is clear that each element in the bids table represents a valid
holding cost for a distribution M" (for starting state M""1) since at this value, hn, location
j will accept or release additional units according to (4) or (5) respectively.
These holding costs also imply:
(i) For units to be sent to locations (and M" to be going negative), If must be decreas?
ing. This implies that after the reshuffle, the largest gain element is the holding cost for a
distribution with one more unit in the network. After each update, the largest gain is less
[by the convexity of (2)]. It is also possible on several updates for the same location to be
the releasing candidate, if the gain from that location remains the largest. The exception
(to be looking always for the largest gain element), is those cost elements, identified
during the reshuffle, which resulted in a unit being released. Obviously, if a location has
released a unit during reshuffle, then when the holding cost was reached in lowering hn,
then {hn <ffn~\xj)}, in which case, the location would no longer release the unit. Thus
these particular cost elements, along with all gain elements must represent valid holding
costs.

This updating procedure can be continued as long as desired; at each update g

more and more negative at the central warehouse.
(ii) Removing units from the network (Mn going positive) requires hn to be increas
Thus after the reshuffle, the smallest cost element is the hn associated with one less
the system. On updating, the next smallest cost is the holding cost associated w
less units in the network. Similar to (i), the other valid holding costs are thos
elements which resulted in a location accepting another unit during reshuffle. A
raised, {If ^ gfn~\xj)}, and thus the location would no longer be willing to acce
unit.

(iii) This updating procedure also can be continued as far as desired. Ultimately, the
system could be drained of units, if If is raised high enough (i.e.?updating the bids table
a sufficient number of times).
(iv) Inaccessible States: The procedure introduced here, controlling the status of the
central warehouse, by adjusting a holding cost, is a simple restatement of the generalized
Lagrangian Multiplier technique, applied to integer programming problems.7 The cell
structure of these multi-location, multi-period queuing networks, makes them amenable
to Lagrangian decomposition. In utilizing such a procedure however, it is possible to
generate integer gaps (Everett gaps). Here an Everett gap is an inaccessible imbalance
(state of the central warehouse) arising because at some holding costs, several locations
are simultaneously demanding (releasing) an additional unit. There is no linear adjust?
ment of the holding cost (hn) which will prevent such a multiple jump in the warehouse
imbalance.8 In order that the final solution be globally optimal, it is necessary that all
warehouse imbalances are accessible. Notice that the size of the multiple jump is eactly
the same as the number of locations simultaneously demanding (releasing) an extra unit.
The convexity of (2) insures that each location will release only one unit at a time.
Gould 9 proposes a number of alternative schemes to strengthen the linear penalty
function in these regions. However, utilizing the bids table procedure eliminates the gap
problem. Suppose a gap of size one is reached. This means that two locations are both
simultaneously requesting/releasing a unit. In dynamic programming terms, two arcs
should be recorded (both having the same origin (Mn~l) and destination (Mn)). However
the distributions of the two arcs would be different. In solving the dynamic program of
(3), both arcs would be treated separately in recursing back to find the optimal path.
Larger gaps would be treated analogously.
At each stage a complete set of arcs is generated, (one for each beginning and ending
node Mn~1 to Mn (with the exception of the multiple arcs generated by inaccessible states
mentioned above).
It is then a simple matter to use the dynamic program (3) at each stage to find the
optimal arc for each ending state M" by a simple search of all arcs leading into state M".
662

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 C. E. Love?Optimal Equipment Transfer Pricing

For each are, all of the cumulative information.in getting to each starting node M""1 is
implied in the functional Gn~ l{Mn~l).
It is also apparent that although (3) implies a forward dynamic program, a simple
relabelling of stages and backward recursion is implied. By proposition (1), the system is
uniquely specified by one end point (either starting or ending) and a holding cost.
Lastly, the dynamic program implied by (3) is optimized by implying a holding cost
associated with each are. However since the holding cost is fictitious the optimal path
between the end. and the beginning state must be net of the holding costs. In fact as is
usual, a search could be made over the choice of ending states to find the overall
minimum net total cost, and its associated path. This does mean however, a willingness
in the future to start with this new beginning state.

COMPUTATIONAL RESULTS

A firm is running a 5-location system and wishes to determine the

transfers for the next 4 periods. Transfer costs are given in Table 1. The
each location are presented in Table 2. These costs were generated u
Central warehouse storage cost, wfn was chosen as ?10, and the
purchase cost, w~n was chosen as ??50. (Note: w~n is treated as negati
will be positive, since Mn is treated as negative in the deficit range).
The first bids table is constructed from starting state M? = 0. All ot
executed in a similar fashion.
Reshuffling from M?
Step 1 Gains vector (Eqn 4) Costs vector (Eqn 5)
0?(3) = 58.37 - 25 = -9 /5(3) = 92 - 58 + 15 = 49
g?(2) = 448.8 - 378.7 - 20 f?2(2) = 522.9 - 448.8 + 10
= 50.1 = 84.1
g?3(5) = 155 - 146 - 40 /?(5)= 165 - 155 + 25 = 35
= -31
gl(4) = 493.8 - 425 - 30 /2(4) = 56.6 -493.8 + 20
= 38.8 = 92.6
g?5(6)= 10.05 - 9.85 - 25 /?(6) = 10.3 - 10.03 + 15
= -24.80 = 15.25
'.' Largest gain (50.1) > smallest cost (15.25)
.'. Switch one unit from location no. 2 to location no. 5.
Step 2 Updating locations no. 2 and no. 5
02(3) = 378.7 - 313.6 - 20 /?(3) = 448.8 - 378.7 + 10
= 45.1 = 80.1
g?5(5) = 10.3 - 10.05 - 25 /S(5)= 11.4- 10.3 + 15 = 16.1
= -24.75
.'. Again switch one unit to Location no. 2(45.1) from Location no. 5(1
Step 3 Updating locations no. 2 and no. 5
g?2(4) = 313.6 - 254.6 - 20 /?(4) = 378.7 - 316.6 + 10
= 39 = 72.1 -
g?5(4)= 11 A- 10.3 -25 /?(4) ="15.6 ? 11.4+ 15
= -23.9 = 19.2
Again switch from no. 5 to no. 2.

Table 1. Bring/send costs

] Total = 20*
The same over
all periods

* The initial 20 units were fully allocated, thus: M" = 0.

663

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 Journal of the Operational Research Society Vol. 31, No. 1

h5 ? C

rn 10 10 <n co in MD md md r-
rncr\. ' r^ i> ? -h
O co '-h r-* On ^h 'st- On
CN co HOOM^O MD MD CO i-h <N 'sf

^h MD MD MD OO '
md md oq r-; md oq r--#
? On MD ? On ? MD Tt Tt ^ t-h OnMD
MD *-h <
O M m HQMO O O co y-* <n r-
CN CN <N

oq r- cn cn oq cn O; CN f-;
<ri on rn (N oo ?ri rn O ? ? CN co On co* ^ On
CN cn co ir> in >n m (N
,-H H CN <N <N

TO O
md'oo oq
? On On MD CN CN MD CO
? ? co co
^-i ,?i co co co

v~> in ?n oo
p p ? ^t ? Tt i> ? Tt o ? o ?-T
CN ? ? Tt co ? CN Tt MD co CN ?'
? ? ** cn ddod
Tt o U"> MD MD MD Tt" Tt i?i in r- i?i
*?i CN co CO CO

co co md co v> c-^ md in co in co
hddo ^oinoN io-xtir*io in m ? r- ?' vS co ?
MDWO lO ?T> MD CN CN CN MD MD h \D h h
<
u O <U
o ) '?' '-l

MD tJ- On MD
?^T ?
Tt "*. oq oq
P6 f~> ^ r-l \Q CO CO MD MD
o m r-( rH OO md ?i oo ON On On OO On
P nm Tt Tt TT 3 o
H
U

O- MD -^t Tt l> Tt Tt Tt Tt MD Tt MD 43 <u

2
o
OO i/S CN CO MD OO CN
MD MD COMD
t^ incN^-HiO
r^^ocN r-~r^OMD MD MD CN CO ,?i ? ,?t *??
u ro i?t i?< i?t co *?i ir>

CN 00 00 CO oo oo oo r-i l> 00 OO (N CN CN CO MD oo oo r^ OO
On CN CN C^ "t CN CN r- OOTtCNTt TtTtr-ON mc^nom
^H Tt ?I?I rHTt ^INO'

<N <r> O <N i-H <N O O OOcoo >noo^

CN <0 OO CO OMVO(N CN CN CO OO lOMDCO</">
lO -h CN CN ?r> -^ t^ r- r- cn <n ^h md

oooo oooo ?nooo OOOO oooo

? ? ? ? oooo *-i o o o oooo oooo
(NHHfO MD ^H CN CO CN MD CN OO OOOOCOTt hM h r-1

-^CNcOTt nMn^t iCNCOTt ^HCNCOTt '"HCNCOTt

664

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 C. E. Love?Optimal Equipment Transfer Pricing

Step 4 Updating locations no. 2 and no. 5

g?2(5) = 254.6 - 203 - 20 /S(5) = 313.6 254.6 + 10
= 31.6 = 69
0?(3)= 15.6- 11.4-25 /5NSO(3) = 28 - 15.6 + 15 = 27.4
= -20.8
Now it is optimal to switch from location no.to location no. 4
5 (cost = 19.2)
(gain = 38.8).
Step 5 Updating locations no. 4 and no. 5
g?4(5) = 425 - 360.7 - 30 /2(5) = 493.8 - 425 + 20
= 34.3 = 88.8
0?(2) = 28 - 15.6-25 = -12.6 /?(3) = 28 - 15.6 + 15 = 27.4
Thus the reshuffled bids are now:
Reshuffled Bids
0?(3) = -4 /?(3) = 49
0?(5) - 3,1.6 f?2(5) = 69
0?<5),V-31 /g(5) = 35
g?4(5) = 34.3 / 2(5) = 88.8
ff?(5)-12.6 ? /S(2) = 42
With the minimum cost (35 greater than the maximum gain 34
plete; and the holding cost to generate the reshuffled table is 3
ated so far is a valid holding cost for some other distribution at th
well, we can continue to update this bids table to generate add
bids table was used as the starting point in finding the optimal

ANALYSIS OF RESULTS

From the optimal solution, the equipment allocations can be summarize

holding cost is highest in period 1 due mainly to an entirely inappropriate
equipment initially. Thereafter, switches are less dramatic. Although
exhibit the behaviour, if for any reason demand in any period (over all loc
the system would most likely take advantage of this very Iow storage cost
to store the equipment at the central warehouse rather than pay a sub
around in the system.
A second case was examined using the same data as before but with
and purchase costs both raised to ?100.00, at these prices, the total i
period remained at 20 units although some redistribution between loca
did take place. Naturally, as well the holding cost in each period was h
previous case (as were total systems and net systems costs) since locatio
advantage of inexpensive central warehouse equipment to lower their o

EXTENSIONS

There are a variety of problems in which this algorithm may prov

example, consider the classic production problem of allocating a fix

Table 3. 4 Period optimal equipment allocations

Total systems cost = ?4029.75 and the net systems: ?3179.55.

cost
Time for execution = 5.8 seconds of C.P.U. time.

665

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms
 Journal of the Operational Research Society Vol. 31, No. 1

machines over a variety of products in a multi-period framework. By treating products as

locations, and modelling the system as a queuing process the optimal allocation of
machines to products can be solved using the algorithm. The holding costs determined
have a valuable interpretation as they are the optimum absorption costs by which
machine time is charged against products.10 The speed of calculation and the elimination
of the "gap" problem make such an application feasible.
There are many other similar problems in the field of capacitated systems to which
such an approach may be applied. The determination of these optimal holding costs is
intuitively appealing because of the interpretations possible.

REFERENCES

1H. Harrison (1979) A planning system for facilities and resources in distributed networks.
2G. T. Ross and R. M. Soland (1967) Modelling facility location problem as a genera
problem. Mgmt Sci. 24, 345-357.
3R. A. Howard (1971) Dynamic Probabalistic Systems. Vol. 1, Markov Models. Wiley, Lon
4W. D. Whisler (1967) A stochastic inventory model for rental equipment. Mgmt Sci. 13,
5L. Takacs (1962) Introduction to the Theory of Queues. Oxford Univ. Press, New York.
6H. III Everett (1963) Generalized Lagrange multiplier method for solving problems of o
resources. Opns Res. 11, 399^17.
7M. Bellmore, H. J. Greenberg and J. J. Jarvis (1970) Generalized penalty function conc
ical optimization. Opns Res. 18, 229-252.
8G. L. Nemhauser and Z. Ullman (1968) A note on the generalized Lagrange multip
integer programming problem. Opns Res. 16, 450-453.
9F. J. Gould (1967) Extensions of Lagrange multipliers in non-linear programming. Ph.D
of Chicago, Graduate School of Business.
10 J. Hirshliefer (1956) On the economics of transfer pricing. J. Busin. 24, 172-184.

666

This content downloaded from 103.21.127.79 on Wed, 21 Aug 2019 15:03:23 UTC
All use subject to https://about.jstor.org/terms