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Inventory models with unreliable suppliersin a random environment

S. Özekici and M. Parlar

Annals of Operations Research, 1999, vol. 91, issue 0, 123-136

Abstract: We consider infinite‐horizon periodic‐review inventory models with unreliable supplierswhere the demand, supply and cost parameters change with respect to a randomly changingenvironment. Although our analysis will be in the context of an inventory model, it is alsoappropriate for production systems with unreliable machines where planning is done ona periodic basis. It is assumed that the environmental process follows a Markov chain.The stock‐flow equations of the inventory system subject to environmental fluctuations isrepresented using a two‐dimensional stochastic process. We show that an environment‐dependentorder‐up‐to level (i.e., base‐stock) policy is optimal when the order cost is linearin order quantity. When there is also a fixed cost of ordering, we show that a two‐parameterenvironment‐dependent (s, S) policy is optimal under reasonable conditions. We also discusscomputational issues and some extensions. Copyright Kluwer Academic Publishers 1999

Date: 1999
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DOI: 10.1023/A:1018937420735

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