Admission Control for a Capacitated Supply System with Real-Time Replenishment Information

35 Pages Posted: 1 Jun 2022

See all articles by Weina Ma

Weina Ma

affiliation not provided to SSRN

Mustafa Hekimoğlu

Kadir Has University

Rommert Dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ; Econometric Institute; Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM) ; Tinbergen Institute Rotterdam

Abstract

Control towers can provide real-time information on logistic processes to support decision making. The question however, is how to make use of it and how much it may save. We consider this issue for a company supplying expensive spare parts which has limited production capacity. Besides deciding on base stock levels, it can accept or reject customers. The real-time status information is captured by a k-Erlang distributed replenishment lead time. First we model the problem with patient customers as an infinite-horizon Markov decision process and minimize the total expected discounted cost. We prove that the optimal policy can be characterized using two thresholds: a base work storage level that determines when ordering takes place and an acceptance work storage level that determines when demand of customers is accepted. In the numerical study, we show that using real-time status information on the replenishment item and adopting admission control can lead to significant cost savings. The cost savings are highest when the optimal admission threshold is a work storage level with a replenishment item halfway in process. This finding is different from the literature, where it is stated that the cost increase of ignoring real-time information is negligible under either the lost sales or the backordering case. Next we study the problem where customers are of limited patience. We find that the optimal admission policy is not always of threshold type. This is different from the literature which assumes an exponential production lead time.

Keywords: Admission control, control tower, inventory systems, make-to-stock queues, customer impatience, Markov Decision Process

Suggested Citation

Ma, Weina and Hekimoğlu, Mustafa and Dekker, Rommert and Dekker, Rommert, Admission Control for a Capacitated Supply System with Real-Time Replenishment Information. Available at SSRN: https://ssrn.com/abstract=4125477 or http://dx.doi.org/10.2139/ssrn.4125477

Weina Ma

affiliation not provided to SSRN ( email )

No Address Available

Mustafa Hekimoğlu

Kadir Has University ( email )

Kadir Has University, Cibali Mah
Fatih
Istanbul, Choose a State or Province 34083
Turkey
34083 (Fax)

HOME PAGE: http://webprs.khas.edu.tr/~mhekimoglu/

Rommert Dekker (Contact Author)

Econometric Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

HOME PAGE: http://https://www.eur.nl/people/rommert-dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1274 (Phone)
+31 10 408 9162 (Fax)

HOME PAGE: http://www.few.eur.nl/few/people/rdekker/

Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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