Peeling Layers of an Onion: Inventory Model with Multiple Delivery Modes and Forecast Updates

Journal of Optimization Theory and Applications, Vol. 108, No. 2, pp. 253-281, February 2001

29 Pages Posted: 19 Feb 2008 Last revised: 1 May 2014

See all articles by Suresh Sethi

Suresh Sethi

University of Texas at Dallas - Naveen Jindal 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

Date Written: 2001

Abstract

This paper is concerned with a periodic review inventory system with fast and slow delivery modes and regular demand forecast updates. At the beginning of each period, on-hand inventory and demand information are updated. At the same time, decisions on how much to order using fast and slow delivery modes are made. Fast and slow orders are delivered at the end of the current and the next periods, respectively. It is shown that there exists an optimal Markov policy and that it is a modified base-stock policy.

Keywords: forecast revisions, multiple delivery modes, stochastic optimization, base-stock policy, inventory models, Peeling Layers of an Onion, Forecast Updates, dynamic programming

JEL Classification: C61, M11, D83

Suggested Citation

Sethi, Suresh and Yan, Houmin and Zhang, Hanqin, Peeling Layers of an Onion: Inventory Model with Multiple Delivery Modes and Forecast Updates (2001). Journal of Optimization Theory and Applications, Vol. 108, No. 2, pp. 253-281, February 2001. Available at SSRN: https://ssrn.com/abstract=1094598

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

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

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