IDEAS home Printed from https://ideas.repec.org/a/eee/oprepe/v9y2022ics2214716022000082.html
   My bibliography  Save this article

A marginal analysis framework to incorporate the externality effect of ordering perishables

Author

Listed:
  • Sasanuma, Katsunobu
  • Delasay, Mohammad
  • Pitocco, Christine
  • Scheller-Wolf, Alan
  • Sexton, Thomas

Abstract

The exact analysis of optimal ordering policies for periodic-review perishable inventory systems is challenging because of their high-dimensional state space arising from multiple interrelated ordering decisions over many periods and age distributions of on-hand products. We develop a new marginal analysis framework to approximate this complex multiple-decision model into a single-decision model with an externality term, which internalizes the long-term impact of ordering decisions. Our externality-based approximation utilizes a constant base-stock policy; it is fast and easy to apply. Numerical experiments show that our approach provides state-dependent ordering amounts almost identical to the optimal dynamic programming-based policy.

Suggested Citation

  • Sasanuma, Katsunobu & Delasay, Mohammad & Pitocco, Christine & Scheller-Wolf, Alan & Sexton, Thomas, 2022. "A marginal analysis framework to incorporate the externality effect of ordering perishables," Operations Research Perspectives, Elsevier, vol. 9(C).
    • Handle: RePEc:eee:oprepe:v:9:y:2022:i:c:s2214716022000082
    DOI: 10.1016/j.orp.2022.100230
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S2214716022000082
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.orp.2022.100230?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Huanan Zhang & Cong Shi & Xiuli Chao, 2016. "Technical Note—Approximation Algorithms for Perishable Inventory Systems with Setup Costs," Operations Research, INFORMS, vol. 64(2), pages 432-440, April.
    2. Richard Toner & Laura Pizzi & Brian Leas & Samir Ballas & Alyson Quigley & Neil Goldfarb, 2011. "Costs to hospitals of acquiring and processing blood in the US," Applied Health Economics and Health Policy, Springer, vol. 9(1), pages 29-37, January.
    3. Kouki, Chaaben & Legros, Benjamin & Zied Babai, M. & Jouini, Oualid, 2020. "Analysis of base-stock perishable inventory systems with general lifetime and lead-time," European Journal of Operational Research, Elsevier, vol. 287(3), pages 901-915.
    4. Itir Z. Karaesmen & Alan Scheller–Wolf & Borga Deniz, 2011. "Managing Perishable and Aging Inventories: Review and Future Research Directions," International Series in Operations Research & Management Science, in: Karl G. Kempf & Pınar Keskinocak & Reha Uzsoy (ed.), Planning Production and Inventories in the Extended Enterprise, chapter 0, pages 393-436, Springer.
    5. Xiuli Chao & Xiting Gong & Cong Shi & Huanan Zhang, 2015. "Approximation Algorithms for Perishable Inventory Systems," Operations Research, INFORMS, vol. 63(3), pages 585-601, June.
    6. Van-Anh Truong, 2014. "Approximation Algorithm for the Stochastic Multiperiod Inventory Problem via a Look-Ahead Optimization Approach," Mathematics of Operations Research, INFORMS, vol. 39(4), pages 1039-1056, November.
    7. Marco Bijvank & Woonghee Tim Huh & Ganesh Janakiraman & Wanmo Kang, 2014. "Robustness of Order-Up-to Policies in Lost-Sales Inventory Systems," Operations Research, INFORMS, vol. 62(5), pages 1040-1047, October.
    8. Steven Nahmias, 1975. "On ordering perishable inventory under erlang demand," Naval Research Logistics Quarterly, John Wiley & Sons, vol. 22(3), pages 415-425, September.
    9. Woonghee Tim Huh & Ganesh Janakiraman, 2010. "On the Optimal Policy Structure in Serial Inventory Systems with Lost Sales," Operations Research, INFORMS, vol. 58(2), pages 486-491, April.
    10. Retsef Levi & Ganesh Janakiraman & Mahesh Nagarajan, 2008. "A 2-Approximation Algorithm for Stochastic Inventory Control Models with Lost Sales," Mathematics of Operations Research, INFORMS, vol. 33(2), pages 351-374, May.
    11. Brant E. Fries, 1975. "Optimal Ordering Policy for a Perishable Commodity with Fixed Lifetime," Operations Research, INFORMS, vol. 23(1), pages 46-61, February.
    12. Hossein Abouee‐Mehrizi & Opher Baron & Oded Berman & David Chen, 2019. "Managing Perishable Inventory Systems with Multiple Priority Classes," Production and Operations Management, Production and Operations Management Society, vol. 28(9), pages 2305-2322, September.
    13. Xin Chen & Zhan Pang & Limeng Pan, 2014. "Coordinating Inventory Control and Pricing Strategies for Perishable Products," Operations Research, INFORMS, vol. 62(2), pages 284-300, April.
    14. Yi Yang & Youhua (Frank) Chen & Yun Zhou, 2014. "Coordinating Inventory Control and Pricing Strategies Under Batch Ordering," Operations Research, INFORMS, vol. 62(1), pages 25-37, February.
    15. Steven Nahmias, 1975. "Optimal Ordering Policies for Perishable Inventory—II," Operations Research, INFORMS, vol. 23(4), pages 735-749, August.
    16. Vickrey, William S, 1969. "Congestion Theory and Transport Investment," American Economic Review, American Economic Association, vol. 59(2), pages 251-260, May.
    17. Woonghee Tim Huh & Ganesh Janakiraman & John A. Muckstadt & Paat Rusmevichientong, 2009. "Asymptotic Optimality of Order-Up-To Policies in Lost Sales Inventory Systems," Management Science, INFORMS, vol. 55(3), pages 404-420, March.
    18. Paul Zipkin, 2008. "On the Structure of Lost-Sales Inventory Models," Operations Research, INFORMS, vol. 56(4), pages 937-944, August.
    19. Carlin, Alan & Park, Rolla Edward, 1970. "Marginal Cost Pricing of Airport Runway Capacity," American Economic Review, American Economic Association, vol. 60(3), pages 310-319, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shouchang Chen & Yanzhi Li & Yi Yang & Weihua Zhou, 2021. "Managing Perishable Inventory Systems with Age‐differentiated Demand," Production and Operations Management, Production and Operations Management Society, vol. 30(10), pages 3784-3799, October.
    2. Hailun Zhang & Jiheng Zhang & Rachel Q. Zhang, 2020. "Simple Policies with Provable Bounds for Managing Perishable Inventory," Production and Operations Management, Production and Operations Management Society, vol. 29(11), pages 2637-2650, November.
    3. Hossein Abouee‐Mehrizi & Mahdi Mirjalili & Vahid Sarhangian, 2022. "Data‐driven platelet inventory management under uncertainty in the remaining shelf life of units," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3914-3932, October.
    4. Qing Li & Peiwen Yu, 2014. "Multimodularity and Its Applications in Three Stochastic Dynamic Inventory Problems," Manufacturing & Service Operations Management, INFORMS, vol. 16(3), pages 455-463, July.
    5. Xiuli Chao & Xiting Gong & Cong Shi & Chaolin Yang & Huanan Zhang & Sean X. Zhou, 2018. "Approximation Algorithms for Capacitated Perishable Inventory Systems with Positive Lead Times," Management Science, INFORMS, vol. 64(11), pages 5038-5061, November.
    6. Li‐Ming Chen & Amar Sapra, 2021. "Inventory renewal for a perishable product: Economies of scale and age‐dependent demand," Naval Research Logistics (NRL), John Wiley & Sons, vol. 68(3), pages 359-377, April.
    7. Xin Chen & Menglong Li, 2021. "Discrete Convex Analysis and Its Applications in Operations: A Survey," Production and Operations Management, Production and Operations Management Society, vol. 30(6), pages 1904-1926, June.
    8. Hanukov, Gabi & Avinadav, Tal & Chernonog, Tatyana & Yechiali, Uri, 2020. "A service system with perishable products where customers are either fastidious or strategic," International Journal of Production Economics, Elsevier, vol. 228(C).
    9. ElHafsi, Mohsen & Fang, Jianxin & Hamouda, Essia, 2021. "Optimal production and inventory control of multi-class mixed backorder and lost sales demand class models," European Journal of Operational Research, Elsevier, vol. 291(1), pages 147-161.
    10. Zhou, Haijie & Chen, Kebing & Wang, Shengbin, 2023. "Two-period pricing and inventory decisions of perishable products with partial lost sales," European Journal of Operational Research, Elsevier, vol. 310(2), pages 611-626.
    11. Jinzhi Bu & Xiting Gong & Xiuli Chao, 2023. "Asymptotic Optimality of Base-Stock Policies for Perishable Inventory Systems," Management Science, INFORMS, vol. 69(2), pages 846-864, February.
    12. Zhou, Quan Spring & Olsen, Tava Lennon, 2017. "Inventory rotation of medical supplies for emergency response," European Journal of Operational Research, Elsevier, vol. 257(3), pages 810-821.
    13. Xiong‐zhi Wang & Guo‐qing Wang, 2019. "Integrating dynamic pricing and inventory control for fresh‐agri product under consumer choice," Australian Economic Papers, Wiley Blackwell, vol. 58(1), pages 96-111, March.
    14. Dehghani, Maryam & Abbasi, Babak & Oliveira, Fabricio, 2021. "Proactive transshipment in the blood supply chain: A stochastic programming approach," Omega, Elsevier, vol. 98(C).
    15. Xin Chen & Zhan Pang & Limeng Pan, 2014. "Coordinating Inventory Control and Pricing Strategies for Perishable Products," Operations Research, INFORMS, vol. 62(2), pages 284-300, April.
    16. Saif Benjaafar & David Chen & Rowan Wang, 2017. "Managing Production-Inventory Systems with Scarce Resources," Manufacturing & Service Operations Management, INFORMS, vol. 19(2), pages 216-229, May.
    17. Onur Kaya & Sajjad Rahimi Ghahroodi, 2018. "Inventory control and pricing for perishable products under age and price dependent stochastic demand," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 88(1), pages 1-35, August.
    18. Hanukov, Gabi & Avinadav, Tal & Chernonog, Tatyana & Yechiali, Uri, 2019. "Performance improvement of a service system via stocking perishable preliminary services," European Journal of Operational Research, Elsevier, vol. 274(3), pages 1000-1011.
    19. Yanyi Xu & Sang-Phil Kim & Arnab Bisi & Maqbool Dada & Suresh Chand, 2018. "Base-Stock Models for Lost Sales: A Markovian Approach," Purdue University Economics Working Papers 1305, Purdue University, Department of Economics.
    20. Bijvank, Marco & Vis, Iris F.A., 2011. "Lost-sales inventory theory: A review," European Journal of Operational Research, Elsevier, vol. 215(1), pages 1-13, November.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:oprepe:v:9:y:2022:i:c:s2214716022000082. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/operations-research-perspectives .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.