Periodic-Review Inventory Model with Three Consecutive Delivery Modes and Forecast Updates

Journal of Optimization Theory and Applications, Vol. 124, No. 1, pp. 137-155, January 2005

19 Pages Posted: 9 Apr 2008 Last revised: 26 Apr 2014

See all articles by Qi Feng

Qi Feng

Purdue University - Krannert School of Management

Guillermo Gallego

Columbia University

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

Abstract

This paper is concerned with a periodic-review inventory system with three consecutive delivery modes (fast, medium, and slow) and demand forecast updates. At the beginning of each period, the inventory level and demand information are updated and decisions on how much to order using each of the three delivery modes are made. It is shown that there is a base-stock policy for fast and medium modes which is optimal. Furthermore, the optimal policy for the slow mode may not be a base-stock policy in general.

Keywords: Inventory management, multiple delivery modes, forecast updates, base-stock policy, dynamic programming

JEL Classification: M11, C61, D83, M20

Suggested Citation

Feng, Qi and Gallego, Guillermo and Sethi, Suresh and Yan, Houmin and Zhang, Hanqin, Periodic-Review Inventory Model with Three Consecutive Delivery Modes and Forecast Updates. Journal of Optimization Theory and Applications, Vol. 124, No. 1, pp. 137-155, January 2005 . Available at SSRN: https://ssrn.com/abstract=1118353

Qi Feng

Purdue University - Krannert School of Management ( email )

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

Guillermo Gallego

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Suresh Sethi

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 (Contact Author)

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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