A Single-Unit Decomposition Approach to Multiechelon Inventory Systems

Alp Muharremoglu () and John N. Tsitsiklis ()
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Alp Muharremoglu: Graduate School of Business, Columbia University, New York, New York 10027
John N. Tsitsiklis: Laboratory for Information and Decision Sciences, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Operations Research, 2008, vol. 56, issue 5, 1089-1103

Abstract: We show the optimality of state-dependent echelon base-stock policies in uncapacitated serial inventory systems with Markov-modulated demand and Markov-modulated stochastic lead times in the absence of order crossing. Our results cover finite-time horizon problems as well as infinite-time horizon formulations, with either a discounted or an average cost criterion. We employ a novel approach, based on a decomposition of the problem into a series of single-unit single-customer problems that are essentially decoupled. Besides providing a simple proof technique, this approach also gives rise to efficient algorithms for the calculation of the base-stock levels.

Keywords: inventory/production; multiechelon; inventory/production: policies; review/lead times (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (34)

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