94%-Effective Policies for a Two-Stage Serial Inventory System with Stochastic Demand
AbstractA two-stage inventory system is considered where Poisson demand occurs at Stage 1, and Stage 1 replenishes its inventory from Stage 2, which 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. Under the assumption that the supply leadtime at Stage 2 is zero, we characterize a simple heuristic policy whose long-run average cost is guaranteed to be within 6% of optimality, i.e., a 94%-effective policy. The paper also provides heuristic policies for more general inventory systems and reports computational results.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 45 (1999)
Issue (Month): 12 (December)
multi-echelon inventory; stochastic demand; worst case analysis; heuristic policy;
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- Li, Xiuhui & Wang, Qinan, 2007. "Coordination mechanisms of supply chain systems," European Journal of Operational Research, Elsevier, vol. 179(1), pages 1-16, May.
- 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.
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