Fair share allocation provides each distribution facility with an equitable or fair share of available inventory from a common source such as a plant warehouse.
•Assuming that from a total inventory units of 600 it is desirable to retain 100 units at plant warehouse; 500 units are available for allocation.
•First we need to determine the number of days’ supply.

DS = (A +S Ij )  / S Dj , where

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-DS= no. of days supply for distribution centre inventories.
-A= inventory units to be allocated from the warehouse
-Ij= inventory in units for distribution centre j.
-Dj = daily demand for distribution centre j

¨In the above example,

•DS = {500 + ( 50+100+75)} /  (10+50+ 15)
•DS= {500 + 225} /75 =725/75 = 9.67 days

 

•Thus, fair share allocation means that each distribution centre should be brought up to 9.67 days stock.
•The amount to be allocated to each distribution centre is determined as under:

¨Aj = (DS – Ij /Dj ) x Dj, where

-Aj = amount allocated to distribution centre j
-DS= number of days supply that each distribution centre is brought upto.
-Ij = inventory in units for distribution centre j
-Dj= daily demand  for distribution centre j
-Thus, the amount allocated to distribution centre 1 will be

¨A1= (9.67- 50/10) x 10 = (9.67- 5) x 10= 4.67x 10= 46.7 or 47 units.

 

 

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