Optimal and asymptotically optimal policies for assemble‐to‐order n‐ and W‐systems

Lijian Lu, Jing‐Sheng Song and Hanqin Zhang

Naval Research Logistics (NRL), 2015, vol. 62, issue 8, 617-645

Abstract: We consider two specially structured assemble‐to‐order (ATO) systems—the N‐ and W‐systems—under continuous review, stochastic demand, and nonidentical component replenishment leadtimes. Using a hybrid approach that combines sample‐path analysis, linear programming, and the tower property of conditional expectation, we characterize the optimal component replenishment policy and common‐component allocation rule, present comparative statics of the optimal policy parameters, and show that some commonly used heuristic policies can lead to significant optimality loss. The optimality results require certain symmetry in the cost parameters. In the absence of this symmetry, we show that, for systems with high demand volume, the asymptotically optimal policy has essentially the same structure; otherwise, the optimal policies have no clear structure. For these latter systems, we develop heuristic policies and show their effectiveness. © 2016 Wiley Periodicals, Inc. Naval Research Logistics 62: 617–645, 2015

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:62:y:2015:i:8:p:617-645

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