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, pp. 19-42, February 2006

24 Pages Posted: 27 Feb 2008

See all articles by Qi Feng

Qi Feng

Mitchell E. Daniels, Jr School of Business, Purdue University

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

Abstract

We present a periodic review inventory model with multiple delivery modes. We generalize the notion of the base-stock policy for inventory systems with multiple delivery modes. While base-stock policies are optimal for one or two consecutive delivery modes, it is not so otherwise. For multiple consecutive delivery modes, we show that only the fastest two modes have optimal base stocks, and provide simple counterexamples to show that the remaining ones do not in general. We investigate why the base-stock policy is not optimal through detailed analyses of two numerical examples.

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, 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, pp. 19-42, February 2006, Available at SSRN: https://ssrn.com/abstract=1098901

Qi Feng

Mitchell E. Daniels, Jr School of Business, Purdue University ( email )

403 Mitch Daniels Blvd.
West Lafayette, IN 47907
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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