A characterization of optimal base-stock levels for a continuous-stage serial supply chain
AbstractIn this paper, we present a continuous model to optimize multi-echelon inventory management decisions under stochastic demand. Observing that in such continuous system it is never optimal to let orders cross, we decompose the general problem into a set of single-unit sub-problems that can be solved in a sequential fashion. When shipping and inventory holding costs are linear in the stage, we show that it is optimal to move the unit associated with the k-th next customer if and only if the inventory unit is held in an echelon located within a given interval. This optimal policy can be interpreted as an echelon base-stock policy such that the base-stock is initially increasing and then decreasing in the stage. We also characterize the optimal policy when costs are piecewise-constant. Finally, we study the sensitivity of the optimal base-stock levels to the cost structures.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/905.
Length: 35 pages
Date of creation: 01 Feb 2011
Date of revision:
multi-echelon; optimal control; unit-tracking decomposition;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
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