Optimal Policies for a Dual-Sourcing Inventory Problem with Endogenous Stochastic Lead Times

Jing-Sheng Song (), Li Xiao (), Hanqin Zhang () and Paul Zipkin ()
Additional contact information
Jing-Sheng Song: Fuqua School of Business, Duke University, Durham, North Carolina 27708
Li Xiao: CUHK Business School, The Chinese University of Hong Kong, Shatin, Hong Kong
Hanqin Zhang: Business School, The National University of Singapore, 119245, Singapore
Paul Zipkin: Fuqua School of Business, Duke University, Durham, North Carolina 27708

Operations Research, 2017, vol. 65, issue 2, 379-395

Abstract: We consider a single-product, two-source inventory system with Poisson demand and backlogging. Inventory can be replenished through a normal supply source, which consists of a two-stage tandem queue with exponential production time at each stage. We can also place an emergency order by skipping the first stage, for a fee. There is no fixed order cost. There are linear order, holding, and back-order costs. Through a new approach, we obtain optimal ordering policies for the discounted or long-run average cost and also characterize near-optimal heuristic policies. The approach consists of four steps. The first step is to establish an equivalent system, in the sense that it has the same optimal policy as the original system. The second step is to construct a tandem queueing system, where costs are charged in accord with the equivalent system’s cost structure. The third step derives an optimal control of the service rate at each server so as to minimize the tandem queue’s system-wide cost. The fourth and final step is to translate the queue’s optimal policy to an optimal policy for the equivalent system and hence the original system.

Keywords: dual-source; stochastic lead time; inventory policy; dynamic programming; tandem queue; optimal control (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://doi.org/10.1287/opre.2016.1557 (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:65:y:2017:i:2:p:379-395

Access Statistics for this article

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