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Note: Optimal Policies for Serial Inventory Systems Under Fill Rate Constraints

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  • Sven Axsäter

    (Department of Industrial Management and Logistics, Lund University, P.O. Box 118, SE-22100 Lund, Sweden)

Abstract

A continuous review serial production/distribution system with discrete compound Poisson demand for the end product is considered. Unmet demand is back-ordered. Production/transportation times are constant. All deliveries from one stage to the next must be multiples of given batch sizes. We consider the problem of minimizing the holding costs under a fill rate constraint. Using recent results by Chen (2000), we show that under a set of restricted but plausible assumptions, the optimal policy is an echelon stock multistage (R, nQ) policy with one of the reorder points varying over time. We provide a simple procedure for the determination of the optimal policy.

Suggested Citation

  • Sven Axsäter, 2003. "Note: Optimal Policies for Serial Inventory Systems Under Fill Rate Constraints," Management Science, INFORMS, vol. 49(2), pages 247-253, February.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:2:p:247-253
    DOI: 10.1287/mnsc.49.2.247.12746
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    References listed on IDEAS

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    1. Sven Axsäter & Kaj Rosling, 1993. "Notes: Installation vs. Echelon Stock Policies for Multilevel Inventory Control," Management Science, INFORMS, vol. 39(10), pages 1274-1280, October.
    2. van Houtum, G. J. & Zijm, W. H. M., 1991. "Computational procedures for stochastic multi-echelon production systems," International Journal of Production Economics, Elsevier, vol. 23(1-3), pages 223-237, October.
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    4. Diks, E. B. & de Kok, A. G. & Lagodimos, A. G., 1996. "Multi-echelon systems: A service measure perspective," European Journal of Operational Research, Elsevier, vol. 95(2), pages 241-263, December.
    5. Fangruo Chen, 2000. "Optimal Policies for Multi-Echelon Inventory Problems with Batch Ordering," Operations Research, INFORMS, vol. 48(3), pages 376-389, June.
    6. Hau L. Lee & Corey Billington, 1993. "Material Management in Decentralized Supply Chains," Operations Research, INFORMS, vol. 41(5), pages 835-847, October.
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