Technical note-constant-order policies for lost-sales inventory models with random supply functions: Asymptotics and heuristic

Jinzhi Bu, Xiting Gong, Dacheng Yao

Research output: Journal article publicationJournal articleAcademic researchpeer-review

4 Citations (Scopus)

Abstract

We consider an infinite-horizon lost-sales inventory model where the supply takes positive lead times and is a random function of the order quantity (e.g., random yield/capacity). The optimal policy for this model is computationally intractable, and no heuristic has been proposed in the literature. In this paper, we focus on a simple class of constant-order policies (COPs) that place the same order in every period regardless of the system state. Under some assumptions on the random supply function, we prove that the best COP is asymptotically optimal with large lead times, and the optimality gap converges to zero exponentially fast in the lead time. We also prove that if the mean supply capacity is less than the mean demand, then the best COP is also asymptotically optimal with large penalty costs; otherwise, the long-run average cost of the best COP asymptotically increases at the rate of the square root of the penalty cost. Further, we construct a simple heuristic COP and show that it performs very close to the best COP. Finally, we provide a numerical study to derive further insights into the performance of the best COP.

Original languageEnglish
Pages (from-to)1063-1073
Number of pages11
JournalOperations Research
Volume68
Issue number4
DOIs
Publication statusPublished - Jul 2020
Externally publishedYes

Keywords

  • Constant-order policy
  • Inventory
  • Lead time
  • Lost sales
  • Penalty cost
  • Random supply function

ASJC Scopus subject areas

  • Computer Science Applications
  • Management Science and Operations Research

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