TY - JOUR
T1 - Emergency orders in the periodic-review inventory system with fixed ordering costs and stochastic lead times for normal orders
AU - Johansen, Søren Glud
PY - 2019
Y1 - 2019
N2 - This paper presents various periodic review policies for inventory control of a single item facing compound Poisson demand. Emergency orders are controlled by a reorder point policy with a target stock level, whereas normal orders are issued according to a reorder point policy with a fixed order quantity. We assume that emergency orders have a short constant lead time and are more expensive than normal orders for which the extra lead time is specified as a stochastic multiple of the review period. In addition to variable and fixed costs for emergency orders and fixed costs for normal orders, our model includes linear holding and backlogging costs. Pure policies issuing either emergency orders or normal orders are used for benchmarking and initialization purposes of two combined policies, OPT and SIMP, which allow at most one normal order with remaining lead time longer than the lead time for emergency orders. The combined policies are computed by applying Markov decision models and, for some model-exogenous control variables, neighborhood search. The numerical study shows a large potential for cost improvement from using normal orders and emergency orders in combination. The relative cost increase of the new SIMP compared with the previously studied OPT is often about 1%. Because SIMP is easier than OPT to administer and explain, it is more appropriate than OPT for practical applications.
AB - This paper presents various periodic review policies for inventory control of a single item facing compound Poisson demand. Emergency orders are controlled by a reorder point policy with a target stock level, whereas normal orders are issued according to a reorder point policy with a fixed order quantity. We assume that emergency orders have a short constant lead time and are more expensive than normal orders for which the extra lead time is specified as a stochastic multiple of the review period. In addition to variable and fixed costs for emergency orders and fixed costs for normal orders, our model includes linear holding and backlogging costs. Pure policies issuing either emergency orders or normal orders are used for benchmarking and initialization purposes of two combined policies, OPT and SIMP, which allow at most one normal order with remaining lead time longer than the lead time for emergency orders. The combined policies are computed by applying Markov decision models and, for some model-exogenous control variables, neighborhood search. The numerical study shows a large potential for cost improvement from using normal orders and emergency orders in combination. The relative cost increase of the new SIMP compared with the previously studied OPT is often about 1%. Because SIMP is easier than OPT to administer and explain, it is more appropriate than OPT for practical applications.
KW - Backlogging
KW - Emergency order
KW - MODEL
KW - Markov decision model
KW - Policy iteration
KW - Reorder-point policy
KW - S POLICIES
KW - Stochastic lead times
UR - http://www.scopus.com/inward/record.url?scp=85044712544&partnerID=8YFLogxK
U2 - 10.1016/j.ijpe.2018.01.017
DO - 10.1016/j.ijpe.2018.01.017
M3 - Journal article
AN - SCOPUS:85044712544
SN - 0925-5273
VL - 209
SP - 205
EP - 214
JO - International Journal of Production Economics
JF - International Journal of Production Economics
ER -