Approximation Algorithms for Perishable Inventory Systems

Xiuli Chao (), Xiting Gong (), Cong Shi () and Huanan Zhang ()
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Xiuli Chao: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109
Xiting Gong: Department of Systems Engineering and Engineering Management, The Chinese University of Hong Kong, Shatin, N.T., Hong Kong
Cong Shi: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109
Huanan Zhang: Department of Industrial and Operations Engineering, University of Michigan, Ann Arbor, Michigan 48109

Operations Research, 2015, vol. 63, issue 3, 585-601

Abstract: We develop the first approximation algorithms with worst-case performance guarantees for periodic-review perishable inventory systems with general product lifetime, for both backlogging and lost-sales models. The demand process can be nonstationary and correlated over time, capturing such features as demand seasonality and forecast updates. The optimal control policy for such systems is notoriously complicated, thus finding effective heuristic policies is of practical importance. In this paper, we construct a computationally efficient inventory control policy, called the proportional-balancing policy , for systems with an arbitrarily correlated demand process and show that it has a worst-case performance guarantee less than 3. In addition, when the demands are independent and stochastically nondecreasing over time, we propose another policy, called the dual-balancing policy , which admits a worst-case performance guarantee of 2. We demonstrate through an extensive numerical study that both policies perform consistently close to optimal.

Keywords: Inventory/production; approximation/heuristics; perishing/aging items; uncertainty; stochastic (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (19)

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