The Price of Simplicity: Analyzing Decoupled Policies for Multi-Location Inventory Control

Abstract: What is the performance cost of using simple, decoupled control policies in inherently coupled systems? Motivated by industrial refrigeration systems, where centralized compressors exhibit economies of scale yet traditional control employs decoupled room-by-room temperature regulation, we address this question through the lens of multi-location inventory control. Here, a planner manages multiple inventories to meet stochastic demand while minimizing costs that are coupled through nonlinear ordering functions reflecting economies of scale. Our main contributions are: (i) a surprising equivalence result showing that optimal stationary base-stock levels for individual locations remain unchanged despite the coupling when restricting attention to decoupled strategies; (ii) tight performance bounds for simple decoupled policies relative to optimal coupled policies, revealing that the worst-case ratio depends primarily on the degree of nonlinearity in the cost function and scales with the number of locations for systems with fixed costs; and (iii) analysis of practical online algorithms that achieve competitive performance without solving complex dynamic programs. Numerical simulations demonstrate that while decoupled policies significantly outperform their worst-case guarantees in typical scenarios, they still exhibit meaningful suboptimality compared to fully coordinated strategies. These results provide actionable guidance for system operators navigating the trade-off between control complexity and operational efficiency in coupled systems.