Target-based Inventory Pooling Problem

30 Pages Posted: 16 Feb 2021

See all articles by Zheng Cui

Zheng Cui

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

Jianpeng Ding

Hohai University

Daniel Zhuoyu Long

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

Lianmin Zhang

Shenzhen Research Institute of Big Data; Nanjing University

Date Written: February 10, 2021

Abstract

We study a stochastic inventory risk pooling problem, in which the objective is to minimize the risk that the remaining inventory and the unsatisfied demand exceed the pre-specified acceptable levels. We use the robustness optimization framework to model this problem, in which the decision maker does not need to determine the size of the ambiguity set. The model will then determine the most robust solution that satisfies the threshold levels. Moreover, we introduce a new utility-based probability distribution distance and formulate the problem as a convex optimization problem. A column and constraint generation (CCG) algorithm is derived to solve the model exactly. We conduct experiments to compare the performance of our model with two other benchmark models, and show that our model provides lower risk and more robustness to distribution ambiguity.

Keywords: Inventory pooling, Distributionally robust optimization, Target-based, Column and constraint generation algorithm

Suggested Citation

Cui, Zheng and Ding, Jianpeng and Long, Daniel Zhuoyu and Zhang, Lianmin, Target-based Inventory Pooling Problem (February 10, 2021). Available at SSRN: https://ssrn.com/abstract=3783162 or http://dx.doi.org/10.2139/ssrn.3783162

Zheng Cui

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

Shatin, New Territories
Hong Kong

Jianpeng Ding

Hohai University ( email )

8 Focheng West Road
Jiangning District
Nanjing, Jiangsu 211100
China

Daniel Zhuoyu Long

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

Hong Kong
China

Lianmin Zhang (Contact Author)

Shenzhen Research Institute of Big Data ( email )

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
272
rank
382,319
PlumX Metrics