Abstract

http://ssrn.com/abstract=1475469
 
 

References (28)



 


 



Heuristics for Base-Stock Levels in Multi-Echelon Distribution Networks with First-Come First Served Policies


Ying Rong


Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Zumbul Atan


Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences

Lawrence V. Snyder


Lehigh University - Department of Industrial and Systems Engineering

July 10, 2014


Abstract:     
We study inventory optimization for locally controlled, continuous-review distribution systems with stochastic customer demands. Each node follows a base-stock policy and a first-come, first-served allocation policy. We develop two heuristics, the recursive optimization (RO) heuristic and the decomposition-aggregation (DA) heuristic, to approximate the optimal base-stock levels of all the locations in the system. The RO heuristic applies a bottom-up approach that sequentially solves single-variable, convex problems for each location. The DA heuristic decomposes the distribution system into multiple serial systems, solves for the base-stock levels of these systems using the newsvendor heuristic of Shang and Song (2003), and then aggregates the serial systems back into the distribution system using a procedure we call ``backorder matching.'' A key advantage of the DA heuristic is that it does not require any evaluation of the cost function (a computationally costly operation that requires numerical convolution). We show that, for both RO and DA, changing some of the parameters, such as leadtime, unit backordering cost, and demand rate, of a location has an impact only on its own local base-stock level and its upstream locations' local base-stock levels. An extensive numerical study shows that both heuristics perform well, with the RO heuristic providing more accurate results and the DA heuristic consuming less computation time. Finally, we show that both RO and DA are asymptotically optimal along multiple dimensions for two-echelon distribution systems.

Number of Pages in PDF File: 36

Keywords: Multi-Echelon Inventory Control; Distribution Network; One-Warehouse-Multiple-Retailer (OWMR); Serial Supply Chain; Heuristics

working papers series





Download This Paper

Date posted: September 19, 2009 ; Last revised: July 11, 2014

Suggested Citation

Rong, Ying and Atan, Zumbul and Snyder, Lawrence V., Heuristics for Base-Stock Levels in Multi-Echelon Distribution Networks with First-Come First Served Policies (July 10, 2014). Available at SSRN: http://ssrn.com/abstract=1475469 or http://dx.doi.org/10.2139/ssrn.1475469

Contact Information

Ying Rong (Contact Author)
Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )
No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China
Zumbul Atan
Eindhoven University of Technology (TUE) - Department of Industrial Engineering and Innovation Sciences ( email )
Den Dolech 2
Eindhoven
5600 MB Eindhoven
Netherlands
Lawrence V. Snyder
Lehigh University - Department of Industrial and Systems Engineering ( email )
Harold S. Mohler Laboratory
200 West Packer Avenue
Bethlehem, PA 18015-1582
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,001
Downloads: 251
Download Rank: 71,486
References:  28

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.438 seconds