Heuristics For Base Stock Levels In Multi Echelon Distribution Networks
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Heuristics for Base-stock Levels in Multi-echelon Distribution Networks
We study inventory optimization for locally controlled, continuous-review distribution systems with stochastic customer demands. Each node follows a base-stock policy and a first-come, first-served allocation policy. We develop two heuristics, the recursive optimization (RO) heuristic and the decomposition-aggregation (DA) heuristic, to approximate the optimal base-stock levels of all the locations in the system. The RO heuristic applies a bottom-up approach that sequentially solves single-variable, convex problems for each location. The DA heuristic decomposes the distribution system into multiple serial systems, solves for the base-stock levels of these systems using the newsvendor heuristic of Shang and Song (2003), and then aggregates the serial systems back into the distribution system using a procedure we call “backorder matching.” A key advantage of the DA heuristic is that it does not require any evaluation of the cost function (a computationally costly operation that requires numerical convolution). We show that, for both RO and DA, changing some of the parameters, such as leadtime, unit backordering cost, and demand rate, of a location has an impact only on its own local base-stock level and its upstream locations' local base-stock levels. An extensive numerical study shows that both heuristics perform well, with the RO heuristic providing more accurate results and the DA heuristic consuming less computation time. We show that both RO and DA are asymptotically optimal along multiple dimensions for two-echelon distribution systems. Finally, we show that, with minor changes, both RO and DA are applicable to the balanced allocation policy.
Research Handbook on Inventory Management
Author: Jing-Sheng J. Song
language: en
Publisher: Edward Elgar Publishing
Release Date: 2023-08-14
This comprehensive Handbook provides an overview of state-of-the-art research on quantitative models for inventory management. Despite over half a century’s progress, inventory management remains a challenge, as evidenced by the recent Covid-19 pandemic. With an expanse of world-renowned inventory scholars from major international research universities, this Handbook explores key areas including mathematical modelling, the interplay of inventory decisions and other business decisions and the unique challenges posed to multiple industries.
Fundamentals of Supply Chain Theory
Author: Lawrence V. Snyder
language: en
Publisher: John Wiley & Sons
Release Date: 2019-07-01
Comprehensively teaches the fundamentals of supply chain theory This book presents the methodology and foundations of supply chain management and also demonstrates how recent developments build upon classic models. The authors focus on strategic, tactical, and operational aspects of supply chain management and cover a broad range of topics from forecasting, inventory management, and facility location to transportation, process flexibility, and auctions. Key mathematical models for optimizing the design, operation, and evaluation of supply chains are presented as well as models currently emerging from the research frontier. Fundamentals of Supply Chain Theory, Second Edition contains new chapters on transportation (traveling salesman and vehicle routing problems), integrated supply chain models, and applications of supply chain theory. New sections have also been added throughout, on topics including machine learning models for forecasting, conic optimization for facility location, a multi-supplier model for supply uncertainty, and a game-theoretic analysis of auctions. The second edition also contains case studies for each chapter that illustrate the real-world implementation of the models presented. This edition also contains nearly 200 new homework problems, over 60 new worked examples, and over 140 new illustrative figures. Plentiful teaching supplements are available, including an Instructor’s Manual and PowerPoint slides, as well as MATLAB programming assignments that require students to code algorithms in an effort to provide a deeper understanding of the material. Ideal as a textbook for upper-undergraduate and graduate-level courses in supply chain management in engineering and business schools, Fundamentals of Supply Chain Theory, Second Edition will also appeal to anyone interested in quantitative approaches for studying supply chains.