Effective Dual-Sourcing Through Inventory Projection

arXiv2207.12182MaRDI QIDQ6405958FDOQ6405958

Publication date: 22 July 2022

Abstract: We consider a single-echelon inventory system under periodic review with two suppliers facing stochastic demand, where excess demand is backlogged. The expedited supplier has a shorter lead time than the regular supplier but charges a higher unit price. We introduce the Projected Expedited Inventory Position (PEIP) policy, and we show that the relative difference between the long run average cost per period of this policy and the optimal policy converges to zero when both the shortage cost and the cost premium for expedited units become large, with their ratio held constant. A corollary of this result is that several existing heuristics are also asymptotically optimal in this non-trivial regime. We show through an extensive numerical investigation that the PEIP policy outperforms the current best performing heuristic policies in literature.

Mathematics Subject Classification ID

Probability theory and stochastic processes (60-XX) Operations research, mathematical programming (90-XX)

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