Optimal Policy for a Multiechelon Inventory System with Batch Ordering and Fixed Replenishment Intervals

Xiuli Chao () and Sean X. Zhou ()
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Xiuli Chao: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109
Sean X. Zhou: Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong

Operations Research, 2009, vol. 57, issue 2, 377-390

Abstract: In many production/distribution systems, materials flow in fixed lot sizes (e.g., in full truckloads or full containers) and under regular schedules (e.g., delivery every week). In this paper, we study a multiechelon serial system with batch ordering and fixed replenishment intervals. We derive the optimal inventory control policy, provide a distribution-function solution for its optimal control parameters, and present an efficient algorithm for computing those parameters. Further, we show that the optimal expected system cost is minimized when the ordering times for all stages are synchronized. In contrast to the known approach in the literature that develops a lower bound for the average cost of a given period for the classical serial system, we develop a lower bound for the average total cost over an appropriately defined cycle and then construct a policy that reaches the lower bound. We also discuss its extension to the nonlinear shortage cost case (i.e., the nonlinear cost case). This paper generalizes several recent results on the analysis of multiechelon systems.

Keywords: multiechelon system; optimal policy; synchronized ordering; nonlinear shortage costs; fixed replenishment intervals; batch ordering (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (21)

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