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Near-optimal (r,Q) policies for a two-stage serial inventory system with Poisson demand

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  • Yang, Lei
  • Yang, Jian
  • Yu, Gang
  • Zhang, Hanqin

Abstract

We consider a two-stage serial inventory system whose cost structure exhibits economies of scale in both stages. In the system, stage 1 faces Poisson demand and replenishes its inventory from stage 2, and the latter stage in turn orders from an outside supplier with unlimited stock. Each shipment, either to stage 2 or to stage 1, incurs a fixed setup cost. We derive important properties for a given echelon-stock (r, Q) policy for an approximation of the problem where all states are continuous. Based on these properties, we design a simple heuristic algorithm that can be used to find a near-optimal (r, Q) policy for the original problem. Numerical examples are given to demonstrate the effectiveness of the algorithm.

Suggested Citation

  • Yang, Lei & Yang, Jian & Yu, Gang & Zhang, Hanqin, 2011. "Near-optimal (r,Q) policies for a two-stage serial inventory system with Poisson demand," International Journal of Production Economics, Elsevier, vol. 133(2), pages 728-735, October.
    • Handle: RePEc:eee:proeco:v:133:y:2011:i:2:p:728-735
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    References listed on IDEAS

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    Cited by:

    1. Guo, Cong & Li, Xueping, 2014. "A multi-echelon inventory system with supplier selection and order allocation under stochastic demand," International Journal of Production Economics, Elsevier, vol. 151(C), pages 37-47.
    2. Ming Hu & Yi Yang, 2014. "Modified Echelon ( r, Q ) Policies with Guaranteed Performance Bounds for Stochastic Serial Inventory Systems," Operations Research, INFORMS, vol. 62(4), pages 812-828, August.

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