New Policies for the Stochastic Inventory Control Problem with Two Supply Sources

Anshul Sheopuri (), Ganesh Janakiraman () and Sridhar Seshadri ()
Additional contact information
Anshul Sheopuri: Business Insight Group, IBM T. J. Watson Research Center, Hawthorne, New York 10532
Ganesh Janakiraman: School of Management, The University of Texas at Dallas, Richardson, Texas 75080

Operations Research, 2010, vol. 58, issue 3, 734-745

Abstract: We study an inventory system under periodic review in the presence of two suppliers (or delivery modes). The emergency supplier has a shorter lead-time than the regular supplier, but the unit price he offers is higher. Excess demand is backlogged. We generalize the recently studied class of dual index policies [Veeraraghavan, S., A. Scheller-Wolf. 2008. Now or later: Dual index policies for capacitated dual sourcing systems. Oper. Res. 56 (4) 850--864] by proposing two classes of policies. The first class consists of policies that have an order-up-to structure for the emergency supplier. We provide analytical results that are useful for determining optimal or near-optimal policies within this class. This analysis and the policies we propose leverage our observation that the classical “lost sales inventory problem” is a special case of this problem. The second class consists of policies that have an order-up-to structure for the regular supplier. Here, we derive bounds on the optimal order quantity from the emergency supplier, in any period, and use these bounds for finding effective policies within this class. Finally, we undertake an elaborate computational investigation to compare the performance of the policies we propose with that of dual index policies. One of our policies provides an average cost-saving of 1.1% over the best dual index policy and has the same computational requirements. Another policy that we propose has a cost performance similar to the best dual index policy, but its computational requirements are lower.

Keywords: inventory/production; lead times; dual sourcing; heuristics (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.1090.0799 (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:oropre:v:58:y:2010:i:3:p:734-745

Access Statistics for this article

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