On the stationary stochastic response of an order-constrained inventory system

Wang, Xun ORCID: https://orcid.org/0000-0001-7800-726X, Disney, Stephen M. and Ponte, Borja 2023. On the stationary stochastic response of an order-constrained inventory system. European Journal of Operational Research 304 (2) , pp. 543-557. 10.1016/j.ejor.2022.04.020

PDF - Published Version Available under License Creative Commons Attribution Non-commercial No Derivatives. Download (1MB)

Abstract

We investigate the stochastic response of a base stock inventory system where the order quantity is either upper- or lower-constrained. This system can represent many real-world settings: forbidden returns, minimum order quantities, and capacity constraints for example. We show that this problem can be translated into a stopping time problem where the distributions of orders and inventory can be represented by a countably infinite mixture of truncated and convoluted demand distributions. This result can be extended to the cases of arbitrary lead time and auto-correlated demand. A state-space algorithm is developed to approximate the first- and second-order moments of the order quantity and inventory level. Via a numerical analysis, we investigate the performance of the approximation, as well as the operational and economic impact of the order constraint. In particular, the constraint impacts order and inventory variances via different combinations of the mixture and truncation effects. We show how tuning the constraint can improve the operational and financial performance of the inventory system by acting as a smoothing mechanism.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Uncontrolled Keywords:	inventory, constraint, stochastic response, base stock policy
Publisher:	Elsevier
ISSN:	0377-2217
Date of First Compliant Deposit:	9 May 2022
Date of Acceptance:	14 April 2022
Last Modified:	04 May 2023 11:32
URI:	https://orca.cardiff.ac.uk/id/eprint/149288

Actions (repository staff only)

Edit Item