Marrying Stochastic Gradient Descent with Bandits: Learning Algorithms for Inventory Systems with Fixed Costs

Hao Yuan (), Qi Luo () and Cong Shi ()
Additional contact information
Hao Yuan: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48105
Qi Luo: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48105
Cong Shi: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48105

Management Science, 2021, vol. 67, issue 10, 6089-6115

Abstract: We consider a periodic-review single-product inventory system with fixed cost under censored demand. Under full demand distributional information, it is well known that the celebrated (s, S) policy is optimal. In this paper, we assume the firm does not know the demand distribution a priori and makes adaptive inventory ordering decisions in each period based only on the past sales (a.k.a. censored demand). Our performance measure is regret, which is the cost difference between a feasible learning algorithm and the clairvoyant (full-information) benchmark. Compared with prior literature, the key difficulty of this problem lies in the loss of joint convexity of the objective function as a result of the presence of fixed cost. We develop the first learning algorithm, termed the ( δ , S ) policy, that combines the power of stochastic gradient descent , bandit controls , and simulation-based methods in a seamless and nontrivial fashion. We prove that the cumulative regret is O ( log T T ) , which is provably tight up to a logarithmic factor. We also develop several technical results that are of independent interest. We believe that the developed framework could be widely applied to learning other important stochastic systems with partial convexity in the objectives.

Keywords: inventory; fixed costs; censored demand; learning algorithms; nonparametric; regret analysis (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2020.3799 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:10:p:6089-6115

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().