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Sustainable Inventory with Robust Periodic-Affine Policies and Application to Medical Supply Chains

Chaithanya Bandi (), Eojin Han () and Omid Nohadani ()
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Chaithanya Bandi: Kellogg School of Management, Northwestern University, Evanston, Illinois 60208
Eojin Han: Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208
Omid Nohadani: Industrial Engineering and Management Sciences, Northwestern University, Evanston, Illinois 60208

Management Science, 2019, vol. 65, issue 10, 4636-4655

Abstract: We introduce a new class of adaptive policies called periodic-affine policies , which allows a decision maker to optimally manage and control large-scale newsvendor networks in the presence of uncertain demand without distributional assumptions. These policies are data-driven and model many features of the demand such as correlation and remain robust to parameter misspecification. We present a model that can be generalized to multiproduct settings and extended to multiperiod problems. This is accomplished by modeling the uncertain demand via sets. In this way, it offers a natural framework to study competing policies such as base-stock, affine, and approximative approaches with respect to their profit, sensitivity to parameters and assumptions, and computational scalability. We show that the periodic-affine policies are sustainable—that is, time consistent—because they warrant optimality both within subperiods and over the entire planning horizon. This approach is tractable and free of distributional assumptions, and, hence, suited for real-world applications. We provide efficient algorithms to obtain the optimal periodic-affine policies and demonstrate their advantages on the sales data from one of India’s largest pharmacy retailers.

Keywords: newsvendor network; robust optimization; demand uncertainty; correlation; affine policies; healthcare: pharmacy retailer (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:inm:ormnsc:v:65:y:2019:i:10:p:4636-4655