Optimal Periodic Flexible Policies for Two-Stage Serial Supply Chains

31 Pages Posted: 19 Sep 2017

See all articles by Fang Liu

Fang Liu

Nanyang Technological University (NTU) - Nanyang Business School

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: September 17, 2017

Abstract

In a two-stage serial supply chain, a periodic flexible policy (PF policy) allows the retailer to receive fixed orders that may depend on demand history in one period of the ordering cycle and order freely in other periods. Existing literature has shown that certain PF policies can significantly reduce the inefficiency in a decentralized supply chain. However, these works have mostly defined and implemented ad-hoc periodic flexible policies and have not attempted to identify the optimal periodic flexible policies. In this paper, we characterize the structure of the optimal PF policy using calculus of variations. In particular, we show that under the optimal PF policy, the retailer receives shipments either according to a state dependent capacitated policy or a state dependent order up to policy. Furthermore, we can approximate the retailer's optimal restricted ordering function by a piece-wise linear function and show numerically that this approximation is near optimal.

Keywords: Inventory, Periodic Flexibility, Dynamic Inventory System, Calculus of Variations

Suggested Citation

Liu, Fang and Gavirneni, Srinagesh, Optimal Periodic Flexible Policies for Two-Stage Serial Supply Chains (September 17, 2017). Available at SSRN: https://ssrn.com/abstract=3038559 or http://dx.doi.org/10.2139/ssrn.3038559

Fang Liu (Contact Author)

Nanyang Technological University (NTU) - Nanyang Business School ( email )

Singapore, 639798
Singapore

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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