Are Base-Stock Policies Optimal in Inventory Problems with Multiple Delivery Modes?

OPERATIONS RESEARCH, Vol. 54, No. 4, pp. 801-807, July-August 2006

12 Pages Posted: 5 Feb 2008 Last revised: 31 Aug 2009

See all articles by Qi Feng

Qi Feng

Purdue University - Krannert School of Management

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: January 1, 2004

Abstract

We present a periodic review inventory model with multiple delivery modes. While base-stock policies are optimal for one or two consecutive delivery modes, they are not so otherwise. For multiple consecutive delivery modes, we show that only the fastest two modes have optimal base stocks, and provide a simple counterexample to show that the remaining ones do not. We investigate why the base-stock policy is or is not optimal in different situations.

This note is an abridged version of Q. Feng, S. P. Sethi, H. Yan and H. Zhang, Optimality and nonoptimality of the base-stock policy in inventory problems with multiple delivery modes, Journal of Industrial and Management Optimization, Vol. 2, No. 1, 2006, pp. 19-42.

Keywords: inventory models, inventory/production, uncertainty, multiple delivery modes, base-stock policies,dynamic programming

JEL Classification: C61,M11

Suggested Citation

Feng, Qi and Yan, Houmin and Zhang, Hanqin and Sethi, Suresh, Are Base-Stock Policies Optimal in Inventory Problems with Multiple Delivery Modes? (January 1, 2004). OPERATIONS RESEARCH, Vol. 54, No. 4, pp. 801-807, July-August 2006. Available at SSRN: https://ssrn.com/abstract=1090380

Qi Feng

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

Hanqin Zhang

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing, Beijing 100080
China

Suresh Sethi (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

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