Approximation algorithms for optimal purchase/inventory policy when purchase price and demand are stochastic
Författare
Summary, in English
We consider a purchase/inventory control problem in which the purchase price and demand are stochastic, a common situation encountered by firms that replenish in a foreign currency or from commodity markets. More specifically, we assume that the demand follows a Poisson arrival process and that the log-price evolves according to a general Wiener process. Under these circumstances, the optimal policy is a state dependent base-stock policy that can be described as a series of threshold prices. An iterative procedure for determining the optimal thresholds has been derived earlier but, even for the simplest price process, the solution quickly becomes numerically intractable. To deal with this, we propose an approximation that allows us to derive simple heuristics for finding thresholds that are close to optimal. For certain price processes the heuristics are just a series of closed-form expressions. The computational complexity is reduced significantly, and the numerical study shows that the new heuristics perform considerably better than earlier suggested heuristics.
Avdelning/ar
Publiceringsår
2014
Språk
Engelska
Sidor
1077-1095
Publikation/Tidskrift/Serie
OR Spectrum: Quantitative Approaches in Management
Volym
36
Issue
4
Dokumenttyp
Artikel i tidskrift
Förlag
Springer
Ämne
- Transport Systems and Logistics
Nyckelord
- Stochastic purchase price
- Inventory control
- Approximation algorithms
- Base-stock levels
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 1436-6304