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

Katsunobu Sasanuma, Mohammad Delasay, Christine Pitocco, Alan Scheller-Wolf and Thomas Sexton

Operations Research Perspectives, 2022, vol. 9, issue C

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.

Keywords: Perishable inventory; Marginal analysis; Externality; Constant base-stock policy (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:oprepe:v:9:y:2022:i:c:s2214716022000082

DOI: 10.1016/j.orp.2022.100230

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