Simulation-based Optimization of Inventory Model with Products Substitution

Di Huang, Qiu Hong Zhao () and Cheng Cheng Fan
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Qiu Hong Zhao: Beihang University

A chapter in Innovative Quick Response Programs in Logistics and Supply Chain Management, 2010, pp 297-312 from Springer

Abstract: Abstract The substitution between products is a common phenomenon in supply chains when customers find their favorite product unavailable. Products substitution can improve the availability of products and further enhance the quick response ability of supply chains, especially when the products are perishable. In this chapter, a single-period newsboy framework is utilized in a multi-product environment, wherein one product may be taken as a direct substitute for the others. We present an inventory model allowing for free and full substitution among multiple products and provide the necessary and sufficient optimality conditions for the existence of the optimal solution (optimal quantity of each product ordered). With the demonstration that the objective function is both concave and submodular, a Monte Carlo simulation algorithm for finding the optimal solution is proposed, and computational experiments are conducted to analyze the impact of products substitution on expected profit and total inventory level.

Keywords: Full product substitution; Monte Carlo simulation; Newsboy model (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:ihichp:978-3-642-04313-0_15

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DOI: 10.1007/978-3-642-04313-0_15

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