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Newsvendor bounds and heuristics for serial supply chains with regular and expedited shipping

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  • Sean X. Zhou
  • Xiuli Chao

Abstract

We study an infinite‐horizon, N‐stage, serial production/inventory system with two transportation modes between stages: regular shipping and expedited shipping. The optimal inventory policy for this system is a top–down echelon base‐stock policy, which can be computed through minimizing 2N nested convex functions recursively (Lawson and Porteus, Oper Res 48 (2000), 878–893). In this article, we first present some structural properties and comparative statics for the parameters of the optimal inventory policies, we then derive simple, newsvendor‐type lower and upper bounds for the optimal control parameters. These results are used to develop near optimal heuristic solutions for the echelon base‐stock policies. Numerical studies show that the heuristic performs well. © 2009 Wiley Periodicals, Inc. Naval Research Logistics, 2010

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  • Sean X. Zhou & Xiuli Chao, 2010. "Newsvendor bounds and heuristics for serial supply chains with regular and expedited shipping," Naval Research Logistics (NRL), John Wiley & Sons, vol. 57(1), pages 71-87, February.
    • Handle: RePEc:wly:navres:v:57:y:2010:i:1:p:71-87
    DOI: 10.1002/nav.20388
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    References listed on IDEAS

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    1. Kevin H. Shang & Jing-Sheng Song, 2003. "Newsvendor Bounds and Heuristic for Optimal Policies in Serial Supply Chains," Management Science, INFORMS, vol. 49(5), pages 618-638, May.
    2. Xiuli Chao & Sean X. Zhou, 2007. "Probabilistic solution and bounds for serial inventory systems with discounted and average costs," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(6), pages 623-631, September.
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    Cited by:

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