Asymptotic Optimality of Base-Stock Policies for Perishable Inventory Systems

Jinzhi Bu (), Xiting Gong () and Xiuli Chao ()
Additional contact information
Jinzhi Bu: Department of Logistics and Maritime Studies, Faculty of Business, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Xiting Gong: Department of Decision Sciences and Managerial Economics, CUHK Business School, The Chinese University of Hong Kong, Shatin, New Territories, Hong Kong
Xiuli Chao: Supply Chain Optimization Technology, Amazon, Seattle, Washington 98109; Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109

Management Science, 2023, vol. 69, issue 2, 846-864

Abstract: We consider periodic review perishable inventory systems with a fixed product lifetime. Unsatisfied demand can be either lost or backlogged. The objective is to minimize the long-run average holding, penalty, and outdating cost. The optimal policy for these systems is notoriously complex and computationally intractable because of the curse of dimensionality. Hence, various heuristic replenishment policies are proposed in the literature, including the base-stock policy, which raises the total inventory level to a constant in each review period. Whereas various studies show near-optimal numerical performances of base-stock policies in the classic system with zero replenishment lead time and a first-in-first-out issuance policy, the results on their theoretical performances are very limited. In this paper, we first focus on this classic system and show that a simple base-stock policy is asymptotically optimal when any one of the product lifetime, demand population size, unit penalty cost, and unit outdating cost becomes large; moreover, its optimality gap converges to zero exponentially fast in the first two parameters. We then study two important extensions. For a system under a last-in-first-out or even an arbitrary issuance policy, we prove that a simple base-stock policy is asymptotically optimal with large product lifetime, large unit penalty costs, and large unit outdating costs, and for a backlogging system with positive lead times, we prove that our results continue to hold with large product lifetime, large demand population sizes, and large unit outdating costs. Finally, we provide a numerical study to demonstrate the performances of base-stock policies in these systems.

Keywords: perishable inventory; base-stock policy; asymptotic analysis; inventory issuance; lead times (search for similar items in EconPapers)
Date: 2023
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.2022.4400 (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:69:y:2023:i:2:p:846-864

Access Statistics for this article

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