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Optimal policies for inventory systems with two types of product sharing common hardware platforms: Single period and finite horizon

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  • Chou, Mabel
  • Sim, Chee-Khian
  • Yuan, Xue-Ming
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    Abstract

    In this paper, we consider an inventory system whose products share a common hardware platform but are differentiated by two types of software. Choice of different software results in different installation cost and different selling price of the whole product. Product with different software also faces different customer demand. We investigate the optimal proportion of an order to be installed with software 1 or 2, that maximizes expected profit in the single and multiple period scenarios, respectively. The optimal policy is analytically obtained and proved to be an order-up-to policy in each scenario. Our investigation reveals that whether to replenish, and how much to replenish each product depend not only on its own initial inventory level, and system parameters, but also the initial inventory level of the other product. We perform numerical experiments using the optimal policies we have derived in the paper.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 224 (2013)
    Issue (Month): 2 ()
    Pages: 283-292

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    Handle: RePEc:eee:ejores:v:224:y:2013:i:2:p:283-292

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Inventory; Dynamic programming; Optimal policies; Software;

    References

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    1. Yunzeng Wang & Yigal Gerchak, 1996. "Periodic Review Production Models with Variable Capacity, Random Yield, and Uncertain Demand," Management Science, INFORMS, vol. 42(1), pages 130-137, January.
    2. Nils Rudi & Sandeep Kapur & David F. Pyke, 2001. "A Two-Location Inventory Model with Transshipment and Local Decision Making," Management Science, INFORMS, vol. 47(12), pages 1668-1680, December.
    3. Eungab Kim & Kaphoon Lee & Suk-Ho Kang, 2006. "Optimal purchasing policy in a two-component assembly system with different purchasing contracts for each component," Computational Statistics, Springer, vol. 63(2), pages 301-327, May.
    4. Kwan Eng Wee & Maqbool Dada, 2005. "Optimal Policies for Transshipping Inventory in a Retail Network," Management Science, INFORMS, vol. 51(10), pages 1519-1533, October.
    5. George Tagaras & Morris A. Cohen, 1992. "Pooling in Two-Location Inventory Systems with Non-Negligible Replenishment Lead Times," Management Science, INFORMS, vol. 38(8), pages 1067-1083, August.
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    7. Paterson, Colin & Kiesmüller, Gudrun & Teunter, Ruud & Glazebrook, Kevin, 2011. "Inventory models with lateral transshipments: A review," European Journal of Operational Research, Elsevier, vol. 210(2), pages 125-136, April.
    8. Sharma, Sanjay, 2008. "Theory of exchange," European Journal of Operational Research, Elsevier, vol. 186(1), pages 128-136, April.
    9. Tibben-Lembke, Ronald S. & Bassok, Yehuda, 2005. "An inventory model for delayed customization: A hybrid approach," European Journal of Operational Research, Elsevier, vol. 165(3), pages 748-764, September.
    10. Sanjay Sharma, 2009. "Extending Sanjay Sharma's theory of exchange," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 1(4), pages 325-339.
    11. Özalp Özer, 2003. "Replenishment Strategies for Distribution Systems Under Advance Demand Information," Management Science, INFORMS, vol. 49(3), pages 255-272, March.
    12. Chandrasekhar Das, 1975. "Supply and Redistribution Rules for Two-Location Inventory Systems: One-Period Analysis," Management Science, INFORMS, vol. 21(7), pages 765-776, March.
    13. Edward Ignall & Arthur F. Veinott, Jr., 1969. "Optimality of Myopic Inventory Policies for Several Substitute Products," Management Science, INFORMS, vol. 15(5), pages 284-304, January.
    14. Sharma, Sanjay, 2008. "On the flexibility of demand and production rate," European Journal of Operational Research, Elsevier, vol. 190(2), pages 557-561, October.
    15. Sharma, Sanjay, 2007. "A fresh approach to performance evaluation in a multi-item production scenario," European Journal of Operational Research, Elsevier, vol. 178(2), pages 627-630, April.
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