Inventory policies for two products under Poisson demand: Interaction between demand substitution, limited storage capacity and replenishment time uncertainty

Apostolos Burnetas and Odysseas Kanavetas

Naval Research Logistics (NRL), 2018, vol. 65, issue 8, 676-698

Abstract: We consider a two‐product inventory system with independent Poisson demands, limited joint storage capacity and partial demand substitution. Replenishment is performed simultaneously for both products and the replenishment time may be fixed or exponentially distributed. For both cases we develop a Continuous Time Markov Chain model for the inventory levels and derive expressions for the expected profit per unit time. We establish analytic expressions for the profit function and show that it satisfies decreasing differences properties in the order quantities, which allows for a more efficient algorithm to determine the optimal ordering policy. Using computational experiments, we assess the effect of substitution and replenishment time uncertainty on the order quantities and the profit as a function of the storage capacity.

Date: 2018
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Citations: View citations in EconPapers (4)

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https://doi.org/10.1002/nav.21788

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Persistent link: https://EconPapers.repec.org/RePEc:wly:navres:v:65:y:2018:i:8:p:676-698

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